Seidman’s Plan for Debt Gets Icy Reception

A proposal by a top banking regulator to tackle the Third World debt problem by setting up a new insurance fund was received coolly Monday by some bankers and, more important, by Treasury Secretary Nicholas F. Brady.

Brady said the plan by L. William Seidman, Federal Deposit Insurance Corp. chairman, smacked too much of the debt facilities that bankers and academics have designed as a cure-all for the seven-year crisis.

“This plan is the kind of plan which previously had not been acceptable to the Group of Seven (industrial nations) in the sense that it includes the creation of a new multilateral organization,” Brady told reporters.

“In the past, G-7 members have decided they want the process to work on a debtor-to-lender basis,” he added. “This does not seem to be as good a way as the way we’re going.”

Although Brady promised to look at the details of Seidman’s plan, his skeptical comments suggested that the initiative will never get off the drawing board.

The Group of Seven has opposed grandiose debt plans because they have often relied ultimately on taxpayer funds to buy up sour Third World loans from commercial banks.

Seidman’s proposal calls for an International Debt Insurer, to be capitalized with initial contributions from creditor banks and capital from the International Monetary Fund and the World Bank. The IDI would be funded with periodic premiums paid by the banks.

Counter to Brady Plan

These would be used first to meet the IDI’s obligations in the event of a default, but once the premium and investment income had been exhausted, the facility would have to fall back on the initial capital contributions--in other words, taxpayer-funded institutions would have to foot the bill.