Sharing the Wealth

Treasury Secretary James A. Baker III has taken the initiative in seeking international remedies to the world debt crisis, a welcome departure after more than four years of foot-dragging by the Reagan Administration.

The plan proposed by Baker would utilize the resources of commercial banks, the International Monetary Fund and the international development banks, including the World Bank, to make available some $29 billion in new resources to distressed Third World nations, like Mexico, over the next three years.

This is small by comparison with the cumulative debt of these nations. Brazil and Mexico, the two largest debtors, owe $200 billion, almost half the total debt of the 10 most heavily indebted Third World nations. But the new funds would buoy development plans that are now severely handicapped by the virtual freeze in new loans imposed by most banks. And they could begin the process of adjustment that is essential to avoid economic dislocations that would touch creditors as well as debtors if neglected.

There is a significance that goes beyond the numbers, however. The initiative would seem to mark a reversal of policy by President Reagan. In his first years in office, apparently driven by an ideological hostility to international organizations, he had done all in his power to reduce to effectiveness of the World Bank. He had also abused the International Monetary Fund until he was persuaded in 1983 of its utility in helping American bankers start working out remedies to the debt crisis.

A critical gap remains in policy thinking by the Reagan Administration. There lingers a blindness to the interrelationship between debt and development. It would appear that the President maintains his hostility to increased funding for the World Bank’s soft loan arm, the International Development Assn., which the United States crippled over the objections of all of its allies. There is only grudging and conditional talk in Baker’s initiative of increased capitalization for the World Bank. And there is no talk at all of concessions to open other important funding sources, including the International Fund for Agricultural Development.

Furthermore, the new initiative suffers from an overdose of Reaganomics. Baker set forth the conditions of the new program as if he were teaching supply-side economics on some rural campus. That arrogance ignores the fact that any initiative, to be effective, must be joined by other nations, not all of which share the American President’s fascination with Milton Friedman’s economics.

There is validity, nevertheless, to the Treasury secretary’s firm insistence that help should go only to those nations undertaking the kind of economic restructuring that holds highest hope for rapid economic expansion. That validity has been demonstrated in Third World nations with the most successful development records.

The easing of the debt crisis will depend on two things. First of all, Baker must win the confidence of the commercial banks, the potential source, according to his plan, of $20 billion of new credits for the already heavily indebted developing nations. Second, he must be sure that this is an international effort, not a “Made in U.S.A.” extension of the already suspect Reaganomics. Only then is the plan likely to produce the internal reforms that will accelerate development. Accelerated development is the prerequisite for getting debt repayment on track. Only with global agreement will there be the increased government funding, including increased U.S. government funding, necessary to facilitate the program.