Savings Are Key to Global Prosperity, World Bank Says

More saving by Americans and others is a key to international prosperity, the World Bank said Tuesday in its annual review of economic development.

The World Bank is the largest source of aid for Third World countries, lending over $21 billion in the past 12 months.

“The fundamental problem is a shortage of world saving,” said Stanley Fischer, one of the bank’s vice presidents and its chief economist.

“We focus very much in economics on the U.S. budget deficit, but that’s only one aspect of the shortage of world saving,” he said.

Because Americans do not save enough to meet the borrowing needs of both government and business, the government has to borrow from the savings of other countries to deal with the budget deficit. And government demand for money helps keep interest rates high.

Greater savings would make more money available, thereby holding down interest rates. Lower interest rates make it easier for business to borrow for the expansion that creates more goods and more jobs.

Fischer said that countries all over the world need to encourage saving.

The Organization for Economic Cooperation and Development finds that of 19 major countries, citizens of Britain, Finland, the Netherlands, Norway and Sweden saved less by percentage than American households did last year. Japanese, West Germans, French, Swiss, Belgians, Spaniards and Italians saved a lot more.

Reducing interest rates may be the most important thing that rich countries can do for the Third World, said Fischer, who presented the World Bank’s 1989 World Development Report.

The report challenged a key tenet of Treasury Secretary Nicholas F. Brady’s Third World debt strategy. It said developing countries will not be able to count on more money from Western lenders even if a reduction in their foreign debt makes them more credit-worthy.

“All the evidence points to continued low capital flows to the developing countries in the coming decade,” the Bank said. “Official flows cannot fully offset the sharp reduction in private flows.”

The report said a reduction in the Third World’s $1.3-trillion debt might significantly improve the investment climate and thereby encourage the return of flight capital. But it also said debt reduction could lead to a sharp decline in new money and possibly even to an increase in net outflows, which would depress investment.

“These considerations reinforce the view that continued and powerful structural adjustment by the debtor countries remains the most important ingredient in dealing with the debt problem,” the report said.

Millard F. Long, the American who led the team that prepared the 1989 report, compared the situation in the Third World to the savings and loan crisis in this country.

“We found institution after institution which, we can say, were technically insolvent, much as our savings and loans are in the United States,” he said.