World Trade Expansion, Development, and Financial Stability Act of 1988

World Trade Expansion, Development, and Financial Stability Act of 1988 - Directs the Secretary of the Treasury (in consultation with the Interagency Country Exposure Review Committee and the International Monetary Fund) to estimate the aggregate economic value of the outstanding sovereign debt of each special debtor country which is held by one or more private commercial banks located in the United States. Specifies the factors to be taken into account in making such estimate.

Amends the International Lending Supervision Act of 1983 to allow a temporary exemption from the Federal Reserve Board's risk-based capital guidelines for any banking institution which exchanges its entire portfolio of sovereign debt of special debtor countries for obligations of the special international debt facility established pursuant to this Act.

Defines a "special debtor country" to mean any country listed among the "Highly Indebted Countries" in the 1987-88 edition of the World Debt Tables published by the International Bank for Reconstruction and Development.

Expresses the sense of the Congress that the exchange by U.S. banks of obligations of special debtor countries for obligations issued by the special international debt facility entails debt forgiveness and constitutes a troubled debt restructuring within the meaning of certain accounting standards as issued by the Financial Accounting Standards Board.

Requires banking institutions which hold loans to special debtor countries or which exchange such loans for obligations issued by the special international debt facility to establish special reserves (in addition to reserves presently required). Sets forth the method of calculating the amount of such reserves.

Requires the Secretary of the Treasury, in consultation with the Federal Reserve Board, to make recommendations to specified congressional committees concerning whether banks which exchange their entire portfolio of sovereign debt of special debtor countries for obligations issued by the special international debt facility should be authorized to underwrite and trade securities backed by sovereign debt of special debtor countries.

Amends the Bretton Woods Agreement Act to authorize the Secretary of the Treasury to initiate negotiations with the member countries of the International Monetary Fund to propose amendments to the Articles of Agreement of the International Monetary Fund (IMF) to: (1) establish a special international debt facility; (2) authorize the Managing Director of the IMF to propose an extraordinary allocation of Special Drawing Rights; (3) authorize the negotiation of agreements with highly indebted, less developed countries concerning use of the special international debt facility to provide debt relief, the meeting of balance of payments targets, the prevention of capital flight, economic policy frameworks, and debt relief alternatively conditional on agreeing to and meeting targets for economic indicators; and (4) authorize the issuance of recommendations periodically to such countries for economic indicators and policy instruments.

Authorizes the special international debt facility to: (1) purchase sovereign debt of highly indebted countries held by private commercial banks; (2) reduce the interest rate on sovereign debt purchased by the facility; (3) reduce the principal amount of the sovereign debt purchased by the facility to an amount equal to its economic value; (4) revoke reductions in debt principal if debt relief agreements are violated by a debtor country; (5) maintain a reserve to make provisions against the default by any country on the payment of its sovereign debt; and (6) borrow funds in order to pay in a timely manner amounts due to banks from which the facility has purchased such debt on which a country has defaulted if such default is determined to be temporary or isolated.