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Bailing out the world's banks

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For a generation, one of the salient world economic problems has been how to transfer resources from rich industrial countries to poor nonindustrial ones. This is more usually described as foreign aid of one kind or another.

There have been brilliant success stories - Taiwan, South Korea, Singapore, Brazil, and, despite its problems, Mexico.

There have been dismal failures - Bangladesh, Zaire, Bolivia, practically the whole of the fourth world.

Foreign aid has been managed by governments (the United States and the members of the Organization for Economic Cooperation and Development), international agencies (the International Monetary Fund and World Bank), private charities (CARE, church groups), and private business. The aid extended by private business has included both direct investment and loans by commercial banks. These loans may now total as much as $400 billion, out of a total third-world foreign debt of more than $600 billion. Half of it is due in the next three years, and there's the rub.

Government foreign aid programs have long been unpopular. Except in a few special cases, they have made precious little contribution to economic growth, because neither the US Congress nor a succession of American presidents has been able to resist the temptation to use them for noneconomic (i.e., political) purposes. The largest recipients of what passes for American foreign aid, for example, are Israel and Egypt.

Private business is the clear ideological preference of the Reagan administration to be the channel for the transfer of resources. But as the administration has made clear in the International Harvester case, it also believes that there really ought to be risk in risk enterprise. It will not, in other words, bail out the losers.

Or at least it says it will not. But consider the case of the banks. Some of their loans to the third world were ill-advised to the point of being irresponsible. Some went to enrich corrupt dictators. These two categories can only be explained by a combination of bad business judgment and greed enhanced by high interest rates. But in making a good many, perhaps most, of these loans, the banks were performing a function which otherwise would inevitably have been dumped on governments. They were recycling petrodollars and keeping the third world alive in the aftermath of the oil price shocks.

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