Japan to Propose Debt Reduction for Poor Nations : Strategy to Cut Amounts Owed Marks a Shift That U.S., Others Have Opposed

Times Staff Writer

Japan is expected to unveil today a major new proposal for dealing with the global debt problem that for the first time would seek to reduce the amount of debt that developing countries owe rather than merely help them meet their interest payments to foreign banks.

The plan, to be proposed at the annual meeting of the International Monetary Fund here, would mark a significant change from the current “case-by-case” debt strategy that has been followed since the global debt problem erupted in August, 1982.

The Japanese proposal faces an uncertain future, however. Both the United States and the other major industrialized countries oppose it, and on Monday the IMF’s policy-setting Interim Committee rejected the general notion of providing massive relief for debt-ridden countries.

However, the plan, which marks the first major international economic initiative in recent memory that Japan has proposed on its own, could gain more support in coming months, particularly if Democratic presidential candidate Michael S. Dukakis wins the November election. Dukakis has said he favors broader programs to reduce Third World debt, and there has been increasing support for such plans from private economists.


Low-Interest Loans

The Japanese first made public the existence of the new debt plan at the seven-nation economic summit that President Reagan attended in Toronto last June, but the initial presentation lacked any real specifics. Then-U.S. Treasury Secretary James A. Baker III persuaded them to withdraw it entirely. Baker is the author of the current debt strategy, which calls for pressuring commercial banks to increase their lending to debt-ridden countries.

On Monday, Tokyo announced that it will increase an existing Japanese program that provides low-interest loans to Third World debtors through its Export-Import Bank and will tighten it to require debtor countries to adopt an IMF-approved economic restructuring program in order to qualify. The two debt proposals are not directly related. The Japanese did not say how much they would increase the Export-Import Bank lending program.

The debt-reduction plan the Japanese will offer today is expected to include a complex formula for debt relief: Debtor countries would convert a portion of their outstanding loans into bonds and back them with their own reserves, which they would deposit in a special escrow account that would be managed by the IMF.


Partly to assuage the United States, Japanese officials are expected today to try to play down their differences with the Baker approach. In a separate speech Monday, Bank of Japan Governor Satoshi Sumita asserted that the existing debt strategy “has proved effective” and should be continued and broadened to provide more options by which debtor countries can ease their burdens. The IMF’s Interim Committee also conceded that “more forceful actions are needed” to strengthen the existing debt plan.

In other action Monday, the Interim Committee took a small step to ease the burden on countries that have fallen into arrears in repaying previous loans from the IMF. It asked that creditor countries no longer cut off aid and low-interest loans to countries that fall into such straits. Third World countries are about $3 billion behind schedule in repaying IMF loans.

The panel also put off until next April a decision on whether to ask IMF members to increase the organization’s available lending pool. The United States had called for the delay to give Congress time to consider a pending proposal for raising the nation’s contribution to the World Bank. The issue is expected to be decided by late April.

Meanwhile, scores of rock-throwing leftist militants fought riot police Monday night during the most serious protests against IMF and World Bank lending policies since the talks began Thursday. According to witnesses, several rioters were taken away in police vans, and paramedics said both protesters and police officers were reported injured. No figures were available.