Debt Bomb Defused?

Like many a supposed doomsday weapon, the "debt bomb" has turned out to be a dud. That seems to be true in Latin America, anyway -- and that was where countries had piled up by far the greatest amount of the international debt that sparked despair a decade ago. Experts feared that the ious would crush economies in the Third World, while defaults on the loans would bring down big banks and cause a First World financial crisis.

One by one, however, the Latin countries have been negotiating agreements under which their creditors agreed to accept smaller repayments. The countries in return enacted economic reforms, chiefly steps to control inflation and open up to foreign investment. Last week Brazil, the last major Latin and biggest Third World debtor, worked out an arrangement with 19 banks representing 300 private creditors. The lenders will choose among six different ways to ease Brazil's burden of $44 billion owed to private banks. Those electing to take smaller payments of principal or interest will get Brazilian government guarantees that they really can collect the remaining amounts.

Former Federal Reserve Chairman Paul Volcker told the New York Times, "I ) think you can say that the Latin-American debt crisis is no longer a crisis."