A New Marshall Plan Won’t Rescue Debtors

Neither Secretary of the Treasury James Baker’s proposal for banks to extend $20 billion in new bank credits nor Henry Kissinger’s idea of a new Marshall Plan aid to the debtor countries will solve the current international debt problem. The foreign-debt crisis will not begin to be solved until the debtor countries take major steps to reform their economies and eliminate the conditions which prevent growth and economic well-being.

Mr. Baker’s proposal is unrealistic on two counts. First, the amount of money that would be lent would only add fuel to the fire without resolving the problem. Secondly, I do not see how he can expect the management and shareholders of major American banks to permit increases to their loan portfolios to debtor nations, while the banks are under scrutiny by the regulatory authorities, the rating services downgrade the rating of their senior obligations, the banks continue to increase their reserves for bad loans, and the price of bank stocks is down as dividends and earnings are reduced. The debtor countries are bad commercial risks, and the international private-banking industry and its shareholders should not be made responsible for solving the financial effects of bad government policies.

As Mr. Kissinger knows, the Marshall Plan worked in Europe because it dealt with the reconstruction of infrastructures and the industrial base of advanced economies. The European recipients of the aid pursued much freer economic and financial policies than those followed by todays’ debtor nations. Those policies were supported by efforts towards European economic integration such as the Coal and Steel Community and eventually the EEC, which permitted and encouraged free economic development and thus made possible the success of the Marshall Plan. However, Latin America and Africa, and parts of Asia which are still struggling with development, lack much- needed infrastructure as well as the free economic and political environment which can make a Marshall Plan successful.

The developing nations have been the recipients of much aid for the last 40 years in the form of government grants and credits, multinational agencies assistance, commercial bank loans and foreign private investment.

The problem will not be solved by new loans of Marshall Plans alone. The economies of Latin America and Africa will become viable and able to meet the needs of their citizens and their foreign obligations when those countries take action to free their farmers from price controls, open their borders to free trade, foreign investment and the transfer of technology, undertake policies which will encourage private savings and investments, eliminate governmental intervention in commerce and industry, and lift the protectionism over domestic industry.

Some say that the governments of the debtor nations cannot pay the political price of reform. Should we then be paying the price for them? Should the World’s financial and economic well-being be placed at risk because of these disastrous domestic policies? There are no easy solutions to the problem, but the responsibilty should be placed more on the shoulders of those who contributed most to the crisis--the debtor countries. They sought easy, fast growth through debt-financed investment, then mismanaged the loans, and now seek to lay the blame and the solution on the lenders. The time has come when the debtors must pay the piper; we can help, but we should not do it for them.

ROSENDO J. CASTILLO

Pasadena