Helping the Brady Plan to Develop
ROBERT ROOSA frequently uses such words as ``constructive,'' ``cooperation,'' and ``corrective'' in talking about international monetary affairs. The senior partner in the New York investment banking house of Brown Brothers Harriman has been an influential outsider in this vital area of world affairs ever since he was undersecretary for monetary affairs during the early 1960s. During those Washington years, he was a leader in developing the basic cooperation between finance ministers and central bankers of the industrial nations that continues today to glue the global economic system together.
Thus, when looking at the proposal of United States Treasury Secretary Nicholas Brady for dealing with the $1.3 trillion in developing-country external debts, he notes more than the technical details. He sees a process for developing agreement.
To him, the spring meeting of the International Monetary Fund and the World Bank that concluded Tuesday was an opportunity for the Brady proposal ``to incubate.'' It is a ``creative idea'' that needed consideration and development.
The debt problem has been so difficult because its resolution involves financial losses. The Brady plan, in effect, says the commercial banks will need to write off some of their loans to ease the debt-servicing burden of the developing countries. As an encouragement, the International Monetary Fund (IMF) and the World Bank will offer some guarantees on a portion of the remaining debts or the interest.
Mr. Roosa hopes those guarantees won't have to be exercised ``too often and in any significant degree.'' The Brady plan assumes that debt relief plus more economic reforms in the debtor nations will stimulate their exports and growth sufficiently that they won't default on their remaining debts.
If, however, more of that debt eventually does go down the drain, the IMF and the World Bank will take some losses - not the treasuries and taxpayers of the creditor nations.
Some numbers are emerging. The commercial banks may have to forgive as much as $88 billion worth of debt on their $440 billion of loans to Latin American nations. For US banks, that would amount to more than $20 billion, according to an analyst with Drexel Burnham Lambert Group.