The International Debt Problem

The U.S. Treasury's policy toward the international debt of developing countries has some of the main features of the failed approach toward the thrift industry. Since 1982 the administration approached both problems with optimistic public assessments of the prospects for improvement, while it permitted inaccurate accounting and delayed the search for a lasting solution. The thrift crisis ended with a massive shift of liabilities to the taxpayers. The risk is that the international debt problem win end the same way. -

Banks have been encouraged to carry their International debt at face value and to report Interest as paid even 1f the Interest parent was obtained by making additional loans to the debtor countries. At Seoul 1n 1985 Secretary Baker offered additional loans to countries that reformed their economies so as to promote efficiency and growth. Fifteen countries, known as the Baker 15. were given special attention. Since 1985, the Interest rates on new commitments received by private creditors have been lowered and, in many cases, now differ little from the rates charged by International agencies despite the subordinate position of private debt. A few countries Implemented reforms but most did not. and the growth of GNP for the group remained low.