Treasury Secretary James Baker urgedcommercial banks to be open to new ideas for reducing the third
world debt burden.
    "I believe the commercial banks need to be open to creative
ideas for reducing the debt burden," Baker told the annual
meeting of the Inter-American Development Bank.
    But he said that he was confident banks would make
"substantial new lending" to the major debtors this year.
    He pointed out principal debtor nations are expected to
grow an average 3.5 pct this year, the fastest real rate of
growth since 1980.
    Saying the U.S. debt strategy was making "substantial
headway", Baker said import volumes of debtor countries are
forecast to jump over six pct in 1987 and export volumes almost
five pct -- the best performance in three years.
    He also said economic growth has kept pace with or
surpassed the growth in debt for nine of the 15 major debtors
since 1983.
    "This is a start -- and I venture to say a good one," the
Treasury Secretary said, and he urged the audience of Western
and Latin finance officials and bankers to stand fast against
suggestions of solutions like debt relief.
    While such ideas have political appeal, Baker said, they
would mean a drying up of capital flowing to debtors.
    And even if free market reforms followed, debt fogiveness
would frighten away investors who would not "risk their capital
in a country which abandoned its obligations."
    And he said, "A debt forgiveness plan that damages
commercial banks also weakens confidence in world financial
stability."
    He cautioned that resolving the debt situation would be a
"gradual and painstaking" process, varying from country to
country.
    Reporting on the U.S. debt strategy, Baker said attitudes
in debtor nations have changed and there is much greater
acceptance of free market reforms than hitherto.
    Some countries like Argentina are pursuing anti-inflation
programs. Others, like the Philippines and Chile, are
privatizing companies and swapping debt for equity.
    The International Monetary Fund and World Bank, meanwhile,
have committed nearly 12 billion dlrs in loans for the 15 major
debtor nations since late 1985, official creditors have
rescheduled 14.5 billion dlrs in outstanding loans through the
Paris club, while commercial banks are making new loans.
    Baker pointed out the banks have rescheduld nearly 70
billion dlrs of debt, reaching agreements recently with Chile,
Venezuela and Mexico.
    Elsewhere in his speech, Baker outlined the progress
industrial nations are making in promoting moderate global
growth, low inflation and efforts to reduce massive trade
imbalances.
    He maintained world economic conditions were "continuuing to
improve" a development that would provide a positive backdrop
for debtor nations.
 Reuter
