Industrial nations' plans for dollar and debtors invokes interdependence

ON Sept. 22, Treasury Secretary James Baker agreed, along with four other industrial nations -- Britain, France, West Germany, and Japan -- to take coordinated steps to bring down the value of the American dollar and to step up economic growth in the other nations. Last week in Seoul, Mr. Baker unveiled a new plan to help head off a possible crisis in the rescheduling of the debts of third-world nations. The occasion was the annual meeting of the World Bank and the International Monetary Fund, which brings together public and private bankers from both the developed and developing countries.

The specifics of Baker's plan are perhaps of little interest to the general reader of economic news. They involve a small increase in the amount of lending by commercial banks to developing countries. The amount of the suggested increase may well be too small (21/2 percent). The plan would also involve a step-up in the rate of lending by the World Bank.

What is significant about both the Sept. 22 announcement and the one in Seoul is that the United States is beginning to grapple with the realities of the global economic situation. And this in turn is going to hasten dealing with some domestic problems that are affecting the rest of the world.

It doesn't matter where the catalyst for this change of attitude in Washington came from. It may have been Reagan administration fears that Congress was getting serious about passing protectionist legislation. Or it may have been fears that foreign nations would try to walk away from some of their loans held by banks in rich industrial nations.

Whatever the cause, it is encouraging that the administration is beginning to show some concern about the interconnections in the global economy. No matter that the increased lending suggested may be insufficient. It recognizes that we all must work through this situation together. That implies patience instead of name-calling. That implies holding present loans on the books of banks and not prematurely writing them off.

It also means several things domestically. A key cause of the dilemma foreign nations find themselves in is the high interest rates they are still paying on their loans. Interest rates are still high by historical standards because of the high rates in the US. And rates are high here because of excessive government borrowing to finance an out-of-control budget.

Congress is showing more interest in balancing the budget. This is certainly a higher priority than tax reform, which is on the agenda mainly to give some domestic raison d'^etre to the second Reagan term. Nothing will be lost if tax reform is placed on the back burner -- or even if the burner is turned off.

The choices ahead are not easy. Most of the foreign loans will be on the books of the banks in the year 2000; the only question is whether most foreign nations will soon again be making sufficient economic progress to service -- that is, to pay the interest -- on their loans and maintain their credit standings.

One of the hardest choices still to be made is how to balance the US budget. This is now a subject of major interest to the whole world.

Too fast an increase in taxes could turn the economy downward, and no one sees the answer in a major US recession.

But given the likelihood that government spending cannot be reined in much more unless there is a major cutback in arms, tax increases have to be considered -- even by a Congress that fears the White House will veto a tax increase bill.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK