World economy: experts say debt situation serious, but manageable
Whether the Western democracies' hard-pressed lending structure can absorb the external debt of non-oil, developing countries is today's $375 billion question, Deputy Treasury Secretary Richard McNamar told Congress here. He and spokesmen for the nongovernment, financial world are hopeful, but they emphasize the precarious nature of the debt-ridden free world, which is presently stagnating under worldwide recession.
''With understanding and responsible self-interested behavior by both debtors and creditors,'' Mr. McNamar said, ''the situation today, while serious, is manageable, appears transitory and, to a degree, self-correcting.''
C. Fred Bergsten, director of the Institute for International Economics, along with other nongovernmental witnesses, told a Senate subcommittee under Sen. Charles McC. Mathias Jr. (R) of Maryland, that the International Monetary Fund should now expand lending facilities.
''Current problems should be manageable,'' Jeffrey E. Garten of Lehman Brothers Kuhn Loeb Inc. testified. But whether the witnesses came from Wall Street or the US Treasury, they agreed on current difficulties that have caught nations such as Argentina, Poland, and Mexico.
Between 1973 and 1980, the external debt stock of the non-oil countries leaped from $97 billion to $375 billion, McNamar testified, while annual debt-service payments jumped from $15 billion to $67 billion. He tried to draw a line between reassurance and need for action: ''We do not regard the present situation as an actual or imminent crisis,'' he said.
But the potential for ''irrational and irresponsible behavior'' is growing, and ''for hasty, ill-conceived actions.'' He said there is ''growing pressure, so far largely resisted but ever more insistent, for short-sighted, politically motivated protectionist commercial measures.''
McNamar had the difficult role of providing reassurance, while at the same time acknowledging that a global financial crisis might produce the equivalent of a run on the bank.
''The sky is not falling,'' he said, ''and the world is not on the verge of a major financial crisis.'' But he immediately added that world stability is at issue. The ''degree of risk,'' he charged, ''has sometimes been overstated in the press and elsewhere.''
But he added that ''the overriding question for all countries, developed and developing, is whether the national will and capability for following through on difficult adjustment measures can be sustained.''
McNamar said the next months ''will not be easy or devoid of sensational news ,'' but he promised that the government will assist ''as the leading figure in the world economy.'' He made two pledges: that the government will fight protectionism at all times, and it will tell US lenders whom they may lend money to. That should be better left to the marketplace, he said.