Reagan Proposes Plan to Relieve 3rd World Debt : Says Well-Off Countries Should Increase Imports From Developing Nations

President Reagan called on the world’s industrial nations Tuesday to do their part to relieve the massive $1.1-trillion Third World debt by stimulating their economies to import more goods from developing countries.

Declaring that world economic health “does not hinge solely on U.S. budget policy,” he advocated a global diet of reduced taxes and spending similar to the fiscal prescription that he proposed for the United States when he took office.

“As U.S. budget and trade deficits decline, other countries must pick up the slack, particularly on imports from developing countries,” he said.

The President made the remarks in a speech to the annual convention of the World Bank and the 151-nation International Monetary Fund. His statement underscored the Administration’s long-standing positions on the global economy and Third World debt.

Deficit Is Economic Drain

Later in the day, Reagan signed legislation that sets new targets for reducing the federal budget deficit and reinstates a mechanism to force the Administration and Congress to meet them.

His approval of the measure, albeit reluctantly, “should be seen as a signal that America is not backing down from its responsibilities” for world economic health, Reagan said.

“But having made this decision, I call on the (trade) surplus countries to do the same--to find the political gumption to stimulate their economies without reigniting the fires of inflation,” he said.

The U.S. deficit has been criticized repeatedly by leaders of other nations as a drain on world economic growth. Reagan’s approval of the new deficit-reduction measure came even though it could cause a cutback in defense programs he supports.

Reagan emphasized, however, that other nations, particularly West Germany and Japan, which have large trade surpluses, must now do their part by importing more foreign goods.

“Our focus, and this means all of us, must be on achieving balanced growth and more open economies,” Reagan said.

However, Karl Otto Poehl, president of the Bundesbank, West Germany’s central bank, told reporters that his nation is doing what it can and that domestic demand in his nation already was increasing markedly.

In addressing the Third World debt problem, Reagan called for a partnership of developing countries, commercial banks and international financial institutions to keep loan funds flowing to the struggling debtor nations.

Private Loans Slow

The World Bank and the International Monetary Fund have followed a strategy devised by Treasury Secretary James A. Baker III that relies on multilateral organizations and commercial banks to expand their loans as long as specific economic reforms are followed in the 15 major debtor nations.

However, bank fears about repayment have been mounting and, though loans from the World Bank and other international lending institutions have been up sharply, new loans from private banks have slowed to a trickle.

World Bank President Barber Conable told the gathering that “commercial lenders need to match the realism they have shown in provisioning against loan losses with realism about their longer-term stake in world trade, investment and economic growth.

“Any debt strategy cannot succeed without their active participation,” he added.

The President, speaking to the gathering of international bankers and finance ministers at a Washington hotel, said: “A cooperative solution to the debt problem is the only real answer. It involves a partnership among developing countries, commercial banks and international financial institutions.

“The huge debt burden carried in the Third World is not just their problem; it is our problem,” he said, calling on his audience to pledge to solve it together.

Updated Guidelines

The President, calling for removal of international barriers to open trade, reiterated his vow to veto any “protectionist” trade legislation passed by Congress this session. Although some in Congress have been demanding sanctions against nations that carry a large trade surplus with the United States, Reagan said: “Certainly we cannot succeed without an open and fair world trading system.”

“It is vital . . . that policy-makers not be stampeded into self-destructive action,” he said, decrying “a chorus of American politicians playing to the fears of working people, singing the song of protectionism and charging that, as a result of the trade deficit, jobs will go overseas, unemployment will rise, and the United States will be deindustrialized.” The U.S. trade deficit last year was a record $156.2 billion.

He called for updating trade guidelines--”the rules of the road for international commerce”--to eliminate areas of friction.

In his first speech to the group, Michel Camdessus, the new managing director of the International Monetary Fund, agreed with Reagan’s assessment of the dangers of protectionism.

But he listed the U.S. budget deficit as the single largest contributing factor to global economic imbalances. The deficit in the fiscal year ending today is expected to be $158 billion, down from a record $221 billion last year.

He said the budget deficit continues to have an adverse effect on interest rates, the balance of trade, the credibility of efforts to stabilize the U.S. dollar and “finally, on the allocation of savings throughout the world.” While praising recent steps to help trim the deficit, Camdessus said “further significant progress will be needed in 1988.”

Staff writer Tom Redburn in Washington contributed to this story.