U.S. URGED TO STRENGTHEN DEBT STRATEGY
Several industrial nations are
pressing the United States to consider whether its debt
strategy, under increasing fire in the developing world, needs
to be strengthened, monetary sources say.
    While few nations are ready to pour vast sums of money into
radical "debt relief" style solutions to the debt crisis,
pressure is building for a greater International Monetary Fund
role in the plan.
    But U.S. officials, who are fighting off demands for change
by Congress, are confident they will retain support for their
strategy which will probably be endorsed in a communique
issued by the IMF's policy-making Interim Committee.
    One Reagan administration official said a recent discussion
among leading industrial countries showed there was "very broad
and strong support for continuing the strategy".
    The official said in an interview, "I don't sense that
there's a strong desire to revise the debt strategy, except of
course here on (Capitol) Hill."
    But monetary sources said some industrial nations, like
France and Italy, are troubled by signs the strategy is
increasingly strained. Britain too is said to be concerned.
    In late 1985, Washington called on multilateral development
banks, like the World Bank, and commercial banks to increase
loans to the 15 major debtors by 29 billion dlrs over three
years.
    In return, the major debtors were expected to undertake
reforms promoting inflation-free economic growth, more open
markets and a reduced government role in the economy.
    The IMF was to retain a "central role" in the strategy,
shifting its economic reform programs from emphasizing
austerity to stressing growth, freer trade policies and foreign
investment in debtor nations.
    But monetary sources said some nations want even more
flexibility from the IMF when it sets economic programs tied to
loans for debtor nations.
    Such flexibility would include less rigid economic targets
-- which often lead to artificial crises when they are not met
-- and more reliance on ranges and benchmarks to monitor
economic performance.
    There is also concern that the level of IMF lending is too
low and the commercial banks, themselves under attack for
tawdry loan levels to debtors, want to see it increased.
    The IMF, which holds its semi-annual meetings with the
World Bank next week, will only be a small net lender this
year. Much of its loan disbursements are offset by repayments.
    Meanwhile, most countries, including the United States,
acknowledge the banks have not lived up to their commitments.
    Paul Volcker, chairman of the Federal Reserve Board, is 
particularly irritated with the reluctance of commercial banks
to lend more to reforming debtors, monetary sources say.
    New IMF managing director Michel Camdessus is understood to
be worried about the Fund's image in the developing world,
where it is often depicted as the source of economic ills.
    Camdessus' experience as former chairman of the so-called
"Paris Club" of western creditor governments, has given him
extensive first-hand experience of the debt crisis.
    Brazil, which in February declared an interest paymernts
moratorium on 67 billion dlrs of commercial bank debt, has
flatly ruled out adopting a program of IMF-sponsored economic
reforms. Peru too has rejected an IMF program, curbing debt
repayments to 10 pct of exports.
    But the administration official said Brazil's strategy of
using a moratorium as a negotiating tool might backfire. "It's
probably turning out to be more complicated than they thought.
It underlines the extreme risk that a debtor country takes on
itself when it begins down that road," the official said.
    Indeed, U.S. banks are laying the groundwork for writing
down their Brazilian loans.
    U.S. officials have generally praised most debtors for
adopting genuine economic reforms and the multilateral
institutions for stepping up their lending.
    And they point out that Venezuela, Chile and the
Philippines have struck agreement with commercial banks
stretching out debt repayments.
    But problems still dog assembly of a 7.7 billion dlrs bank
loan for Mexico, which many officials acknowledge may be the
last major cash loan for a debtor country.
    Instead, banks are being pressed to come up with more novel
ways of easing the liquidity squeeze in debtor nations.
    The prospect of greater official involvement in the debt
strategy depends chiefly on the ability of western nations to
come up with more finance.
    While there is sympathy in Congress for various forms of
debt relief, more U.S. funds for the World Bank or the IMF are
a virtual impossibility in today's era of budget restraint.
    That leaves rich surplus nations like Japan and West
Germany, but neither country favors generalized debt relief.
    And the Reagan administration is not inclined to bow to
Congressional pressure for changes in regulations governing
foreign loans, to make it easier for banks to account for
delays in interest and principal repayments.
 Reuter
