Doing Our Part

An impasse is developing on the issue of the debt of developing nations, and the plight of some of those nations is now being further complicated by delays in assuring new funding for the International Development Assn., the World Bank’s soft-loan division. Both Washington and Wall Street have roles to play in finding a solution.

President Bush, through his Treasury secretary, Nicholas F. Brady, has been giving strong leadership to resolving the debt problem. He has indicated willingness to forgive debts owed the U.S. government, primarily by poor sub-Saharan African nations. And he has put together a plan of public and private, national and international funding to ease the debts owed largely to commercial banks, notably by Latin American nations and the Philippines. But a rebellion by the bankers now puts the program at risk.

The banks have failed to forgive substantial enough portions of the Third World indebtedness that they themselves promoted, albeit encouraged by the American government. And now they are holding back on a critical element of the Bush-Brady Plan, the investment of substantial new money. To call this attitude short-sighted is to be overly polite. But it is a reality of the moment.

There are several things that the American government can do to improve the situation.

In regard to the banks, it may now be necessary to provide some incentives, either in regulatory shifts to allow more generous bookkeeping by the banks on their Third World debts, or in tax concessions for new investment in critical areas. It is not far-fetched to defend such concessions in the name of national security. The security of the Western Hemisphere could be gravely affected by further economic deterioration in the key debtor nations--Mexico, Brazil, Argentina and Venezuela.

As for the government, the President needs to end his coyness and give vigorous leadership to funding the international mechanisms that have been given pivotal roles in the debt crisis: The International Monetary Fund, now requesting a 100% increase in its quota; the World Bank, now being threatened by some members of Congress with withdrawal of promised American funds; and the International Development Assn., the World Bank arm that helps the poorest nations with concessional loans. The United States should fully participate in a replenishment of at least $14.5 billion to the IDA, a proposal agreed to by all of the other major donors. Incidentally, these are not costly ventures for the government because most of the funding is in the form of guarantees rather than outright appropriations.

Will this work? Perhaps not everywhere. The situation in Argentina defies, for the moment, any rational solution. Brazil, the biggest debtor of all the developing nations, skipped a $1.6 billion interest payment Sept. 18, an ominous sign of its tenuous situation. But the rescue package for Mexico is still intact, although it has not reversed the egregious flight of the elite’s capital from Mexico. And in most of the debtor nations, even a modest increase in new resources can make an enormous difference at a time when many of them are forced to spend most of their export earnings on debt service and repayment.

The President has recognized the importance of addressing the problem of Poland and Hungary, a rare opportunity for the international community and international agencies like the IMF to demonstrate their commitment to development. The issue of Poland’s development is seen in Washington in sharply defined East-West security terms. Bush now needs to remind the nation, and its bankers, that American security and prosperity are vitally linked not just across the Iron Curtain, but also south across the border, to the developing nations of the world.