Debt plan seems to have chance after all

Press, 4 February 1986, Page 10

Debt plan seems to have chance after all

NZPA-Reuter Honolulu

Representatives of the seven leading industrial democracies which met in Hawaii at the week-end probably will try to breathe new life into the faltering American plan to shore up the international debt, officials said yesterday.

“We need to flesh (the debt plan) out,” said a French official.

The American plan — named after the United States Treasury Secretary, James Baker, who proposed it — calls for banks and commercial institutions to lend almost SUSSO billion ($95.5 billion) to Third World debtors over the next three years. Although banks have given tentative backing to the plan, it has faltered because of uncertainty over exactly how it would work. “The summit leaders should give the plan their personal seal of approval and help it along,” said one official.

Leaders from the seven nations — Britain, Canada, France, Italy, Japan, West Germany and the United States — are scheduled to debate key economic and political issues when they meet in Tokyo in May. A senior American delegate to the preparatory talks said the Baker initiative featured prominently in the discussions.

When it was first proposed last year the United States plan drew a warm response from both debtor nations and their creditors who saw it as signalling a change in Washington’s attitude to the debt question.

"It meant that America was getting more actively involved,” the French official said.

Since then, the initiative has run into practical difficulties. Western officials said they Were still uncertain over which of the 15 top debtor nations would be the first to qualify for the extra money available.

The World Bank, which traditionally promotes the long-term development of the Third World, has also yet to sort out how it will grow into the expanded role as debt co-ordinator which is envisaged under the Baker plan. Some delegates said they were frustrated by the bank’s , ponderous bureaucracy which had prevented it from meeting the challenge of defusing the global debt crisis. Uncertainty exists over whether the world’s monetary authorities should expend considerable energy trying to convince reluctant smaller banks to participate in the Baker initiative.

A proposal that a “superbank” be set up to deal with this problem appears to have floundered, at least for now. Banks have rejected the idea that the former Bank of England Governor, Gordon Richardson, be appointed “superbanker” to co-ordinate commercial bank lending efforts.