VIEWPOINTS : Make Talks More Than Just Talk : West Has a Real Chance to Spur Growth in Third World

Next month the United States and its Western allies will have a golden opportunity to rekindle the prospects for sustained and balanced growth in the world economy.

The signs up to now suggest that they may well throw it away.

In mid-September, rich and poor nations will meet at Puenta del Este, Uruguay, with the goal of launching a new round of international trade negotiations to roll back the creeping protectionism of the past few years and broaden the focus of trade liberalization.

Two weeks later, both sides will gather in Washington at the annual meetings of the International Monetary Fund and the World Bank.

There, the industrialized countries are due to translate their Tokyo summit commitment to enhanced international cooperation into something more than just fine words.

The Reagan Administration has set itself ambitious goals for both meetings.

It wants the agenda for the new trade round to include firm commitments that governments will dismantle agricultural subsidies, introduce new rules to protect intellectual property rights and liberalize trade in services.

At the IMF, James A. Baker III, the U.S. Treasury secretary, will be seeking an agreement on an institutionalized framework for international cooperation to ensure that countries such as West Germany and Japan contribute more to world growth in order to help reduce the spiraling U.S. trade deficit.

The omens are far from encouraging.

Protectionism Accelerates

Protectionism, whether blatant or under the guise of “fair trade,” has accelerated.

Governments still pay lip service to multilateralism in their trade relations, but the recent deal between the United States and Japan to effectively rig the world market in semiconductors is only the latest in a long list of bilateral deals that are advancing the frontiers of protectionism.

The preparations in Geneva for the trade talks have also been marred by the interminable disputes over farm trade between Europe and the United States and by the opposition of most newly industrialized nations to a more liberal regime for trade in services.

The world economy, meanwhile, has apparently stalled, serving to highlight the divisions over exchange and interest rates between governments of the leading industrial powers, particularly those between the United States on one side and West Germany and Japan on the other.

But much more importantly, the squabbling over trade in pasta and citrus fruit and over whether West Germany should shave another half-point off its discount rate is obscuring the fundamental prerequisite both for the success of the trade talks and the eventual running down of the U.S. trade deficit--much faster growth in the developing and newly industrialized world.

More Imaginative Approach

If Baker and his colleagues in Europe and Japan are serious about dismantling protectionism and tackling the imbalances in the world economy, it is vital that they take a more imaginative approach to the debt problem.

There have been one or two encouraging signs. The recent deal between Mexico and the IMF is perhaps the best example.

Although born out of the crisis caused by the collapse in oil prices, it does mark a departure from the creditor countries’ traditional and myopic insistence that a solution to the debt crisis can be found only through deflation in the debtor countries.

That apart, however, the much-vaunted Baker plan launched at last year’s Seoul, South Korea, meeting of the IMF has had little impact.

The finances of the World Bank, which was expected to take a pivotal role in promoting growth-oriented policies in the developing world, show that its net disbursements to the developing countries will be virtually nil this year.

The debtors’ payments of interest and capital on outstanding loans will almost match the bank’s new lending.

That will coincide with a striking surge in the debtors’ repayments to the IMF.

According to the Overseas Development Council, a Washington-based think tank, the IMF will withdraw about $4 billion (net) from the developing world in 1986.

It is hardly surprising that the commercial banks are as reluctant as ever to commit new funds to the indebted nations when official agencies are withdrawing them; it is even less so that many developing nations are now saying that the Baker plan has turned out to be little more than a publicity stunt.

Obvious Contradictions

Western policy-makers also seem to miss some of the obvious contradictions in their policies and objectives.

How sensible is it, for example, to expect countries such as Brazil to dismantle barriers to trade in services while demanding at the same time that it run a trade surplus in order to repay its debts?

Between 1981 and 1984, the collective trade position of the Latin American countries moved from a $4-billion deficit to a $42-billion surplus as they were forced to generate a trade surplus in order to meet their debt obligations.

That swing represented a huge loss of markets for American industry and agriculture, perhaps contributing as much to the spiraling U.S. trade deficit as did the rise in the value of the dollar.

The worldwide deflationary impact of lower oil prices now gives the United States and its Western partners the chance to adopt a more imaginative approach.

A first step would be a concerted program to guarantee large-scale export credits to the indebted nations, an undertaking in which the IMF and World Bank will be net givers--not takers--of funds to the developing world, and a clear signal to commercial banks that they should resume lending.

Tensions Would Be Eased

In the process, many of the internal tensions within the industrialized world would be eased, protectionist pressure in Washington should diminish and the developing countries could be persuaded that freer trade will benefit them as much as richer nations.

It has always been illogical for the United States and its partners to seek to solve the debt crisis and promote world growth by forcing developing countries to transfer resources to developed nations.

To continue with that policy now would be to throw away the marvelous opportunity for sustained non-inflationary growth presented by lower oil prices and the fall in the value of the dollar.

That would be sheer folly.