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.