Baker, Volcker, Officials of 5 Largest Banks : Secret Meeting Held on Debt Crisis

Treasury Secretary James A. Baker III held a secret meeting with top officials of five major U.S. banks and Federal Reserve Board Chairman Paul A. Volcker in Washington on Tuesday evening amid wide speculation that Baker discussed his plan to give the World Bank a larger role in managing the world debt crisis.

Baker also was believed to have asked the banks to make fresh new loans to debtor nations to help them pay off existing debts and finance economic growth.

Banking sources said Tuesday that Baker met with officials of Bank of America, Manufacturers Hanover, Citibank, Morgan Guaranty and Chase Manhattan, the nation’s five largest banks. The sources speculated that Baker gave the bankers advance details on a new U.S. position that will be presented at next Tuesday’s 40th anniversary meeting of the World Bank and International Monetary Fund in Seoul, South Korea.

At a meeting with business executives Tuesday afternoon, Baker declined to discuss details of the meeting but said the bankers would be briefed because any plans to deal with the debt crisis “would likely involve them.”

Treasury officials have said in recent weeks that the Reagan Administration wants the World Bank, a quasi-governmental economic development agency, to work with the IMF to give debtor countries new capital at a time when commercial banks are increasingly unwilling to lend to them.

Broaden World Bank Program

The fund, the World Bank’s sister agency, lends to developing countries provided they agree to try to work their way out of financial emergency by adopting austerity programs.

The Administration has also indicated that it would like the World Bank to broaden its program of overseeing the economic development of nations and use its influence to bring the countries new capital from private sources. Specifically, U.S. officials are talking about the World Bank “co-financing” projects--providing fresh loans or guaranteeing new loans from American or other banks.

They have also floated the idea of a new joint agency of the World Bank and the IMF that would lend to countries that have been unable to pay off their IMF loans. Under the proposal, the agency would provide as much as $5 billion over the next five years to pay current debts and allow the debtor nations to further stretch out their repayments.

The proposal comes almost three years after the Treasury Department proposed a six-point program to deal with the debt crisis. That program has failed to rescue the debtors from their difficulties, which they have been able only to delay by longer and longer stretch-outs of their repayment programs.

U.S. bank officials are likely to react favorably to the increased role of the World Bank, for several have suggested a broader role for public agencies. “They seem to at last be acknowledging that it is a long-term problem rather than a short-term liquidity crunch,” one banker said.

However, the bankers are likely to resist calls that they provide new lending, as many banks are already overextended in their foreign lending.