Crista Lewis

4-22-2002

 

Peter T. Kilborn, "Debt-Policy Shift Set on 3rd World," The New York Times, March 11, 1989.

 

Main Point:

 

Treasury Secretary, Nicholas Brady, outlined a new approach for the U.S. and leading democracies to aid in revamping third-world economies in his presentation to the Bretton Woods Committee.  Not only did he stress reducing outstanding debt and interest payments, but he also supports letting debtor nations continue to borrow to bolster their economies.

 

Summary:

 

Brady enunciated a plan to use U.S. and multinationally financed loan guarantees to collateralize third-world debt and indicated to Bush that he would like to provide more funds to the IMF.  He also proposed that the IMF lessen its policy of restraining aid for countries that have not fully implemented austerity measures.  His plan also called for a bigger role for Japan as a lender due to their excess balance of payments surplus.  Japan’s Finance Minister heralded Brady’s proposal and agreed to support the U.S. plan financially.  Although in September 1988 Brady rejected Japan’s offer to provide “parallel lending” with the IMF through its Export-Import Bank, Japan intends to add more to the prior amount it intended to loan.  A Treasury official conjectured the new loan to be in the “single-digit billions.”

 

Mexico is expected to be the first debtor nation to benefit from the proposal because it would simultaneously ease their debt service burden and quell social and political instability resultant from the debt-related violence. This violence stems from the austerity policies assumed by the newly democratized Latin American nations to comply with IMF mandates.  These countries have restrained economic growth, cut wages, and raised prices for public services, which have impaired its citizens’ standards of living.

 

Along with the support of Mexico and Japan, bankers, Congress Democrats, and other debtor countries reacted positively to Brady’s plan.  The only potential doubts arising from Brady’s address involve the program’s potential cost and on the circumstances of its implementation.  Despite widespread support for the Brady proposal, the Administration intends to maintain the central principles of the 1985 Baker plan.  The main underlying tenet of this plan is that countries need to expand to overcome their debt burden, and to stimulate growth, the following solutions should be adopted:  (1) controls over inflation, (2) individual domestic “economic revisions” within countries, and (3) foreign lending to help these countries rollover their debt.  However, the Administration found that the Baker plan encouraged increased lending without an evaluation of the individual nations’ economic circumstances and their ability to reduce debt service in the long-run.