Latin message: restructure the debt

MEXICAN President Miguel de la Madrid's visit to Washington this week could not have come at a better time. It takes place against the backdrop of an increasing recognition in United States political and economic circles that steps must be quickly taken to ease the plight of debtor nations - such as Mexico - hard hit by rising US interest rates.

Talks between President de la Madrid and President Reagan will encompass a broad range of issues: trade, immigration, tourism, US policy regarding Central America. But given the precarious position of the Mexican economy - with inflation running at high levels despite tough austerity measures imposed by the International Monetary Fund (IMF), as well as a continuing flight of Mexican capital to the US, in part the result of concerns by Mexican investors about another devaluation of the peso - it is expected that economic issues in general and the debt question in particular will be at the center of discussions between the two leaders.

What is needed at this juncture is a two-tiered policy on the part of the Western industrial nations that would ensure an expanding global trade as well as promote a restructuring of third-world debt. The latter point has just been raised by Federal Reserve Board chairman Paul Volcker. Mr. Volcker proposes capping third-world interest charges - somewhat in the way certain adjustable-rate mortgages often carry limitations on the total amount of additional interest that can be charged. An interest rate cap would cushion third-world nations from the effect of rising interest rates in the US.

Last week the prime rate in the US rose to 12.5 percent from 12 percent. Yet, many of the loans to developing nations are based on the prime rate. Recent increases in the prime rate will cost Mexico, for example, an additional $1 billion in interest payments this year on its $90 billion foreign debt. Argentine President Raul Alfonsin notes that the latest two hikes in the prime rate will cost his nation an additional $600 million in annual interest charges.

The growing concern in Washington about the debt problem is understandable. As nations expend more hard currency on debt repayment, they are less able to modernize their own domestic economies. Moreover, they are increasingly unable to buy imports from such nations as the US. That means a curtailment, or at the least a slower rate of increase, in global trade, which works against continuing world economic recovery.

There is another concern on the part of Western nations: Mounting street violence and internal protest in debtor nations against the IMF-imposed austerity measures that have been made conditions for most loans.

In the past, a passive public in many of the Latin American nations let the various austerity measures go forward - but often at great cost to citizens in terms of lower personal income, lost wage increases, and so on. In Brazil, for example, where stringent austerity measures are in place, disposable personal income fell 15 percent in the last three years. Now, increasing numbers of Brazilians, and Latins in general, are known to be asking: Why should we pay more and more out in interest charges to international lenders because of internal US economic conditions, such as rising US interest rates?

As Mr. Volcker argues, some type of debt restructuring is essential for the global economy.

You've read  of  free articles. Subscribe to continue.
QR Code to Latin message: restructure the debt
Read this article in
https://www.csmonitor.com/1984/0515/051532.html
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe