Administration's 'program for sustained growth' would expand loan activity of development banks - James A. Baker's statement - transcript

Business America, Feb 3, 1986

We believe a serious effort to develop the programs of the World Bank and the IDB could raise their disbursements to principal debtors to an average of $9 billion annually in the period 1986-88. This would represent an increase of roughly 50 percent from the current level of nearly $6 billion.

Given the importance of increasing commercial bank flows to the principal debtors, efforts to expand the World Bank's co-financing operations should be pursued vigorously to help borrowers attract private finance.

(3) Action by Commerical Banks

If creditor governments are to be called on to support increases in MDB lending, and if recipient nations are asked to adopt sound economic policies for growth, then there must also be a corresponding commitment by the banking community to help support the principal debtor countries as they make the transition to stronger, sustained growth.

The commercial banks have rescheduled and rolled over nearly $200 billion in these nations' debt since 1982. Net new bank lending to the principal debtor nations, however, has declined from about $25 billion in 1982 to only $4 billion in 1984.

This reluctance to participate in new money and debt rescheduling packages has introduced serious uncertaintied for borrowers, in some cases making it more difficult for them to pursue economic reforms. Pledges of additional financing to support growth-oriented policies are an essential part of a comprehensive growth program.

Our assessment of the commitment required by the banks to principal troubled debtors would be net new lending in the range of $20 billion for the next three years. In addition, countries now receiving adequate financing from commercial banks on a voluntary basis sould continue to do so, provided that they maintain sound policies.

We would like to see the banking community pledge publicly to provide these amounts of new lending on the condition that the debtor countries also make similar growth-oriented policy commitments as their part of the cooperative effort.

U.S. regulatory agencies are on record as stating that, in appropriate circumstances, new lending can help to improve the quality of outstanding credit. In seeking a commitment from the commercial banks, I wouls especially ask their boards of directors to take a direct interest and a longer term view of the potential benefits. If the Program for Sustained Growth works, all the participants--including the banks--will be better off.

If it does not succeed, the banks as well as the borrowing countries will be worse off. So, too, will the economies of the major industrial countries.

If developing countries implement growth-oriented reform, if commercial banks provide adequate increases in net new lending to good performers, and if increased demand for quality IBRD lending demonstrates the need for increased World Bank capital resources, we would be prepared to look seriously at the timing and scope of a general capital increase.

Reaction to U.S. Proporal to

Strengthen the Debt Strategy