Debt problems: a varied picture.
bound to be gradual. In so far as this is due to
the fact that the ECU is still a relatively little
known currency, it need not cause concern;
indeed, excessively rapid growth could even
have negative consequences. But we should be
opposed to a situation in which wider use of the
ECU by private individuals was rendered
virtually impossible by excessive caution on the
part of governments and monetary authorities.
A change of attitude in certain quarters is
certainly desirable, and among the ways of
bringing this about are British membership of
the EMS, the lifting of the ban on ECU
commitments in West Germany and the
liberalization of capital movements in a number
of countries including France and Italy.
A comparison between 1982, the first year of the
"debt crisis", and 1985 shows clearly just how
much progress has been achieved in certain
fields. The aggregate
current account deficit of
the debtor countries has
fallen from 110 billion
to 44 billion, most of
the countries concerned
have substantially
strengthened their
reserves, and virtually all
of them achieved growth
in 1985. But however
great the improvement, it
does not justify the
conclusion that the debt
problem has been solved. Despite many and
drastic restrictive measures, the situation in the
majority of the countries is still far from one of
equilibrium, and the aforementioned
deterioration in a number of external
circumstances, including lower growth in the
United States and a fall in raw material prices,
does not point to early improvement. Moreover,
many of the problem countries have gradually
become tired of pursuing austere policies. With
these facts in mind, it is understandable that the
international banking industry is little inclined
to provide "spontaneous" credits. To make
matters worse, there is evidence that in a
number of debtor countries, including Mexico,
a substantial proportion of the capital inflow
is subsequently exported and invested else
where.
Against this background, the plan put
forward by the U.S. Secretary of the
Treasury, James Baker, for breaking the
deadlock, is to be welcomed. Under this plan a
debtor country, in return for continuing to
pursue a policy of austerity, is promised a
certain sum over a three-year period, to be
provided jointly by the World Bank and the
commercial banks, to finance its current account
deficit. We have agreed in principle to increase
our loans to the debtor countries by 2.5% per
annum, the figure proposed in the plan; we
have, however, made this conditional upon the
willingness of the governments concerned to
furnish problem countries with "fresh money"
in the form of additional direct aid or export
credit guarantees.
The acceptance of the Baker Plan, while an
important step in itself, affords no assurance of a
definitive solution to the debt crisis. One of the
major uncertainties is the flight of capital, to
which reference has already been made. In our
view there is a need for much stiffer penalties
than have so far been imposed. No less
important is the policy pursued by the
industrialized countries in the areas of growth,
DEFICIT DEBTOR COUNTRIES
IN MILLIONS OF DOLLARS
110
100
90
80
70
60
50
40
30
20
10
EC Us old and new-on the right, a French
écu struck in the thirteenth century
under the reign of Saint Louis;
below, the ECU issued in 1979 to
commemorate the introduction of
the European Currency Unit.
