DEBT PROGNOSIS AGREED, BUT NO CURE IN SIGHT
Latin America urgently needs more money
if it is to grow its way out of its deepening debt crisis, but
fresh ideas about how to stimulate new lending quickly seem to
be in short supply.
    Bankers, officials and academics at a conference organized
by the Massachusetts Institute of Technology stressed the
importance of proper economic policies and increased private
investment. But they offered no glimpse of a grand design to
banish the specter of a widespread repudiation of the region's
380 billion dlr debt. "Such a solution is still not in sight,"
said Nobel Prize-winning economist Franco Modigliani.
    The conference was held against the background of the
recent suspension of interest payments by Brazil and Ecuador,
but it was Argentine finance secretary Mario Brodersohn who
spelled out most clearly the social and economic strains caused
by the need to service billions of dlrs of debt.
    Brodersohn, who is negotiating currently with foreign banks
for a 2.15 billion dlr loan for 1987, says Argentina will have
to grow at a four pct annual rate between now and 1992 simply
to restore per capita income to the level of 1975.
    He said the investment needed to fuel this growth can come
partly from structural economic reforms at home, but this alone
will not be enough.
    "We have to reduce the transfer of resources," Brodersohn
said, adding that mounting economic strains in Latin America
make this a matter of urgency.
    Brodersohn and other Latin officials, however, did not
spell out how this should be achieved.
    The creditors' strategy, spelled out by U.S. Treasury
Secretary James Baker in October 1985, is to spur additional
lending by private banks and multilateral development banks in
return for economic reforms.
    But there was a widespread recognition at the conference
that the Baker Plan has fallen well short of expectations.
    Miguel Urrutia, a senior official of the Inter-American
Development Bank, for instance, said IADB lending had actually
declined in 1986 and had started slowly in 1987.
    Mexico is due to sign a 7.7 billion dlr loan on Friday that
will be the first major facility under the Baker Plan, which
called for net new bank lending between 1986 and 1988, a target
that Morris Goldstein of the International Monetary Fund said
is now optimistic.
    Deputy Assistant Secretary of State for Inter-American
Affairs Paul Taylor acknowledged that the Baker Plan "has not
yet succeeded as well as we hoped."
    But if the debtors at the conference were hoping to hear an
official commitment to try a new tack, they must have been
disappoiunted.
    Ted Truman, director of the International Finance Diviision
at the Federal Reserve Board, said banks were short-sighted in
not lending promptly and in the amounts called for by Baker.
    He said some streamlining of the lending process may be
needed, but added, "I see no alterantive to the present course
of responsible cooperation."
    A major theme at the conference, however, was that the
world economy might not continue to cooperate while the debtors
and creditors muddle along. If export markets dry up because of
recession or protectionism, speakers warned, Latin America will
be even more hard-pressed to service its debts.
    Rimmer de Vries, chief international economist at Morgan
Guaranty Trust Co, said he was very concerned that world
economic growth of three to 3-1/2 pct cannot be sustained and
that West Germany and Japan wowuld not take up the slack in the
world economy that will arise as the U.S. narrows its trade
deficit.
    "There's a deflationary force coming down the mountain, and
I don't know who's going to be rolled over," de Vries said. He
called for a new lending initiative with a wide menu of options
as alternatives to pure new money.
    "Can we not manage this lending a bit more imaginatively?"
he asked the conference.
    But new ideas take time to devise and implement, and
Brazil's suspension of interest payments shows that the
aptience of debtors might be wearing thin.
    Persio Arida, a former director of the Brazizlian central
bank who was a key architect of that country's Cruzado plan to
curb inflation, said there is an "incentive problem" throughout
Latin America.
 Reuter
