NEW YORK - Bolivia is heading toward the distinction of being the first Latin American country to negotiate away virtually all its foreign bank debt, officials and bankers said.

Finance Minister Jorge Quiroja told reporters in New York last week that the country would finish negotiations this year on its remaining $180 million of debt.

Detail Sheet to Circulate

A U.S. banker said Bolivia would buy back most of the debt at a huge discount.

The banker, who was involved in the Bolivian negotiations, said a term sheet detailing a primary agreement in April between Bolivia and its four-bank steering committee would soon go to the country's 50 creditor banks

Of the three options available to the banks, one reportedly would enable Bolivia to buy back debt at 16 cents on the dollar; another would convert existing debt into a bond collateralized by 30-year U.S. Treasury bonds, and a third would encourage banks to make a debt donation.

A Five-Year Effort

"The broad consensus is that the vast majority of the debt will go into the [16%] buyback," the banker said.

He said J.P. Morgan & Co. had already exercised the third option in a debt-for-nature swap for Bolivia during the Rio Earth Summit, which would also help to cut the debt.

Mr. Quiroja said Bolivia, one of Latin America's poorest countries per capita, had cut the size of its bank debt from about $700 million to $180 million since 1987 with a debt buyback in which it paid 11 cents on the dollar to banks.

With most banks choosing the new 16-cent buyback option, Bolivia "will almost have got rid of everything," the banker said.

Help from World Bank Unit

He said the deal would be precedent-setting for other poverty-stricken nations such as Nicaragua.

The agreement is part of a special program of the International Development Agency, a World Bank affiliate, that had previously given the African nations of Niger and Mozambique access to about $10 million of financing to enable them to afford debt buybacks.

The bank negotiator said Nicaragua was likely to be the next Latin American country to benefit from the arrangement in a more ambitious effort to target its $1.2 billion of principal claims and years of unpaid interest.

"It's cleaning up the balance sheets of these countries," he said. "Otherwise they'd have this noose around their necks."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.