Banks Reluctant to Make Third World Loans : Baker’s Debt Plan--No Takers Yet

It’s been more than two months since Treasury Secretary James A. Baker III, speaking in Seoul, South Korea, called upon commercial banks to lend more money to developing nations--to the tune of $20 billion over three years.

Although major banks generally have voiced support for what has become known in international finance as the “Baker Plan,” not a single one has come forth yet with a loan offer.

And, despite heavy lobbying of commercial bankers by Baker and Federal Reserve Board Chairman Paul A. Volcker, banking officials say there is still widespread general reluctance to take the first step.

The Reagan Administration had hoped to be able to report some progress on the Baker program by the time representatives of Latin America’s debtor nations convened in mid-December in Montevideo, Uruguay. These nations are the ones that would receive most of the loans under the Baker proposal.

“It would have been helpful,” said Bob Levine, a Baker aide.

“It’s a difficult situation, a hard thing to get hold of,” Levine said, commenting on the lack of concrete results since Baker announced his new initiative at a joint World Bank-International Monetary Fund meeting Oct. 8 in Seoul.

“Most parties seem to be easing toward action--but we’re not there yet,” Levine said. “The banks have to decide--it’s not for us to decide. We’re not going to be pushing banks to make unwise loans.”

Baker’s plan, designed to spur economic growth in Third World nations, calls for $29 billion of new money to be made available over the next three years--$20 billion of it coming from banks and the rest from multinational organizations like the World Bank.

The Treasury secretary’s plan also envisions an expanded role for the World Bank, both in increased lending and, at times, guaranteeing some of the commercial bank loans.

Lenders Voice Support

And it calls on governments of the 15 developing nations targeted for the special assistance to adopt market-oriented economic policies, steps that would strengthen the world trading system.

Commercial lenders holding most of the outstanding bank loans to the 15 nations singled out for additional aid by Baker subsequently issued a statement declaring their support for the Baker program as a “positive and constructive development.”

Still, the money does not appear to be forthcoming anytime soon, international banking officials say.

“The banks at this point are in a very strange position. . . . They are in theory in favor of the program, but the banks don’t want to commit themselves before governments do,” said John Heimann, vice chairman of Merrill Lynch Capital Markets.

He suggested that banks want the United States and other creditor governments to make the first move.

“Also, the banks don’t wish to take the plunge until there is a firmer commitment from the multilateral organizations.”

Just 150 commercial banks account for 85% of the outstanding debt to Third World nations.

“The larger banks don’t want to commit themselves to this process unless the smaller banks are participating. And the smaller banks don’t particularly wish to participate. That’s part of the dynamics now taking place,” Heimann added.

The 15 debtor nations singled out by Baker for additional loans already owe $437 billion--leading many international economists to suggest that a lot more than an additional $20 billion is needed to make a real dent in the Third World debt crisis.

Mexico alone, for instance, has recently asked for $10 billion in new credit. With a foreign debt of $96 billion, Mexico is the world’s second-biggest debtor after Brazil, which owes $103 billion.

Brazil’s planning minister, Joao Sayad, has described the Baker program as “opportune but insufficient.”

The $20 billion would be “peanuts” if all 15 debtor nations joined in making the policy changes sought by the World Bank, Jose Botafogo, the World Bank’s vice president for external relations, told a conference on debt in developing nations.

Complaints by Latin American leaders that the new loans would be insufficient were heard frequently at the mid-December session in Uruguay.

These leaders have said that major industrial nations should help out by extending loans at lower interest rates and buying more goods in the borrowing countries.

World Bank ‘Anxious’ to Help

Outgoing World Bank President A. W. Clausen said in a recent speech in Buenos Aires that, while the World Bank is “ready and anxious” to play an expanded role in assisting debtor nations, those receiving the additional loans must make major and often painful internal policy changes--including reducing deficits and cutting inflation.

Many international economists suggest that the Baker program may not have had a chance to gel yet and that it isn’t dying for lack of interest.

“It is a remarkable initiative and has made remarkable progress,” said Charls E. Walker, an assistant Treasury secretary under former President Richard M. Nixon and co-chairman of the Bretton Woods Committee, an organization formed to support international economic policies.

Money Talk columnist Debra Whitefield is on special assignment.