Sen. Jacob Javits (R-N.Y.) yesterday predicted that a world-wide depression comparable to the economic collapse of the 1930s could begin within two years unless steps are taken to shore up the present international economic system.
But his gloomy perspective was rejected quickly by key officials of the State and Treasury departments and of the Federal Reserve system, who conceded there were problems, but insisted that there is "no evidence" of the dangers outlined by Javits.
In lead-off testimony before a Senate Banking Subcommittee on International Finance, Javits laid great stress on the build-up of debt among poorer nations, largely since the four fold oil price increases implemented by the Organization of Petroleum Exporting Countries since 1973.
He estimated this debt at $180 billion as of the end of last year and predicted that it would swell to $580 billion in 10 years.
"That will break the back of any system, including this system," Javits said. He assailed patchwork efforts to raise money from OPEC countries, insisting that they be required to contribute "tens of billions, not just billions," to help meet the additional cost of oil.
Javits called for doubling the resources of the International Monetary Fund to something close to $100 billion far beyond the level the Carter administration thus far has been willing to support.
The trust of testimony by Anthony Solomon, Treasury Under Secretary for Monetary Affairs, and Richard N. Cooper, State Under Secretary for Ecomomic Affairs, was that the international monetary system had worked well since the oil crisis began. They said a combination of public and private lending had coped with the pile up of debt, and would continue to do so for the next several years.
Both praised the potential effectiveness of a new $10 billion fund created within the IMF, named the Witteveen Facility after its managing director, H.J Witteveen.
Speaking for the Federal Reserve Board, Gov. Henry C. Wallich told the subcommittee that much borrowing by poor nations may have served the purpose of building up their reserves against future needs. He said that the large increase in the total debt "does not seem to pose any imminent threat to the stability of the world economic and financial system."
Solomon set out five reasons why the debt burden might "not be as serve as the numbers suggest," including the contributions debt makes to expandsion of economic growth and trade.He emphasized that the biggest growth of debt has been among the so-called wealthy industrial nations, who borrow heavily from OPEC, rather than the smaller, less-developed nations.
"I agree there is a clear need to address any weakness in the system," Solomon said, "but I don't want to 'cry wolf' by exaggerating them."
Solomon revealed an internal treasury estimate that borrowing demands on the IMF "for the next few years" will not exceed $23 to $27 billion. Counting the $10 billion, or more than enough to meet loan demand, he said.
The $30 billion total includes current resources of nearly $5 billion, $7 billion in increased quotas (deposits) that will be coming in this year, and $3.5 billion in existing lines of credit with major nations. A further quota increase, to take effect in 1979, will be discussed at the IMF annual meeting here next month.
Subcommittee members, led by chairman Adlai Stevenson (D-Ill.), indicated varying degrees of skepticism about what they labelled Solomon's that information on world wide debt was "inadequate." The Treasury official said he was "shocked" when he came into office to see the inadequacy and duplication of data. As a result, a special office has been set up in Treasury to try to make some sense of the conflicting reports.
But Solomon nevertheless said that Javits had exaggerated the potential growth of debt. The Treasury projections were that "the most likely range" of poor-country borrowing for the next few years would be $15 to $20 billion annually, he said. "That ain't hay, either," snapped Javits, who by that time had moved from the witness chair to join the subcommittee in its examination.