Peter Kilborn, “Greenspan Shifts Back on Debt,”  The New York Times, March 17,1989.

 

Alan Greenspan backed the US treasury’s proposal of changing the path of the third world debt, despite reported conflicts between the Fed and the Treasury.  The Fed has generally wanted the alleviation of the third world debt to be tied to a change in the economic policies that have added to the debt.  The Fed and the Treasury are making policies that are largely intended to persuade banks into accepting lower payments of loans from developing countries.

            Bush was reported to state that this policy would result in an estimated 20 percent reduction of the debt and the interest burden over the next three years.  Treasury Undersecretary David Mulford stated that this was a “global” estimate that:

 

obscured vast differences to the attitude of reduction from country to country, that took no account of the probably growth in the conversation of the debt into equity, and that reflected one set of economic assumptions for things like growth and interest rates.

 

Essentially, the amount of debt reduced for each country depends on how many economic revisions they agree to make.  For example, Mexico, the second largest debtor could exceed a 20 percent decrease. 

            Many legislators believe that a 20 percent reduction is insufficient, but the cost of the debt reduction to the United States will be significant.  The United States has a budget deficit to consider as well, but Mulford assured the IMF that America had sufficient funds for at least two years.

            The Treasury is decreasing it’s reluctance to increase the IMF’s funding.  Japan will be contributing a significant amount of this money, which raises concerns of Japan’s political influence over the countries in debt.  Brady (of the US Treasury) stated that other developed countries were also going to be asked to help alleviate the problem.  Brady and Greenspan both agree that “continued economics reform in order to achieve sustained economic growth,” and “timely and adequate external financial resources to support economic development” are principles that they approved of in order to solve the problem of foreign debt.

 

~Jean Miaw