U.S. Now Backs Flexibility for Poorest Nations : Interest Rate Plan Aimed at Debtors Most in Need

U.S. Treasury Secretary James A. Baker III on Wednesday announced a new debt initiative to help the world’s poorest nations that would provide more flexible repayment schedules.

Baker told the annual meeting of the African Development Bank that the United States was prepared to support concessional interest rate reschedulings within the informal Paris Club of Western creditor nations to help what he called the “poorest of the poor.”

This would allow longer maturation periods though still barring reduced interest payments.

“I am pleased to announce today the willingness of the United States to expand the range of options within the Paris Club,” he said. The Paris Club provides financial aid to the world’s poorest countries.

Baker, the first U.S. Treasury chief to address an ADB annual meeting, said the move would mean that creditor governments able to do so could provide the concessional reschedulings for the poorest countries. Eligibility will be examined on a case-by-case basis, he added.

‘Substantial New Relief’

Baker said other countries might make a contribution toward debt relief by considering a broader range of maturities for rescheduled debt.

“Together we believe these changes can produce substantial new relief for the poorest countries,” he added.

In his address in a conference hall packed with leading international bankers and finance ministry officials, Baker emphasized that permitting such differentiation represented “a significant addition to the options available to the Paris Club to address dire debt situations.”

However, Baker again ruled out writing off or forgiving any Third World debt.

His announcement of the new debt approach brought loud applause from delegates, especially African representatives. He said the move was consistent with Washington’s favored case-by-case approach to addressing debt problems in developing countries and did not constitute a generalized approach.

“It is a special technique available to assist only the poorest of the poor in a further effort to support their return to stability and their return to growth,” he added.

Baker said Washington’s approach to tackling the Third World debt crisis was constrained by U.S. laws, policies and budget realities.

Aimed at Poorest

In an apparent reference to Latin America, he said the new policy did not affect what he called “middle-level debt countries” with comparatively higher per-capita incomes.

“But it does represent a change . . . as concerns the official debt owed by the poorest of the poor,” he said.

Asked whether the United States was considering forgiving loans to Third World nations, Baker said Washington had provided $1 billion in grants last year to poor African nations and $11.5 billion during the past seven years.

“We are not permitted to forgive debt,” he said.

In a wide-ranging speech, Baker recognized the troubles of the continent, notably chronic balance-of-payments problems because of slumping export revenues, over-reliance on the public sector, environmental problems, drought and famine.

Africa was described at a symposium preceding the annual ADB meeting as the poorest region in the world. Its foreign debt is estimated at around $218 billion, out of a total Third World debt of about $1.2 trillion.

Baker said the United States and other official creditors were providing significant debt relief through Paris Club reschedulings in support of appropriate economic programs.

“The Paris Club has also begun to extend grace and repayment terms for low-income, heavily indebted countries in a further effort to be responsive to Africa’s economic problems,” he said.

“In this context, while we recognize that rescheduling of interest payments provides temporary liquidity relief, the buildup of rescheduled debt often presents a difficult problem for the poorest countries,” he added.

Welcomed in Britain

He said international lending agencies such as the ADB, the World Bank and the International Monetary Fund were responding to the debt crisis by increasing the resources available for loans.

The ADB, Africa’s leading development financing body, increased its capital by 200% last year to around $20 billion. ADB lending in 1987 was up about 30% on the previous year to $2.14 billion.

In London, British Chancellor of the Exchequer Nigel Lawson welcomed Baker’s comments, ahead of the annual meeting of leaders of seven major industrial nations in Canada.

Lawson, who has pushed for more help for the poorest nations, said: “I welcome the announcement by Secretary Baker that the United States is prepared to move towards acceptance of the initiative I launched last year to help ease the debt burden on the very poorest countries. I very much hope that we can now reach agreement on this initiative at this month’s economic summit in Toronto.”