Baker Criticizes Debt Breaks for Third World

Treasury Secretary James A. Baker III criticized calls for full-scale concessions to Third World debtor countries today, saying such steps could set back progress made so far in the international debt crisis.

In a speech to a congressionally sponsored conference on debt and trade, Baker said of a debt write-off plan, “It will preclude the debtors from gaining access to credit markets for years to come.”

He said this alternative overlooks the fact that the problem is not the level of debt but the ability to make payments on it. Latin America is the most heavily indebted region with total debt of $370 billion.

Baker said that debt relief, meaning a cut in interest rates on loans, would force losses on commercial banks and that it would therefore “be naive to think that future loans would be forthcoming.”

Baker said a Marshall Plan infusion of funds would also be an inappropriate solution because the comparison between Europe after World War II and the state of debtor nations today is inexact.

While Europe had tremendous experience with a market exchange system and its chief need was start-up capital, debtor nations today do not have the needed systems to immediately transform vast sums of money into efficient investment, he said.