The Treasury's top official on international economic affairs said yesterday that "a significant number" of countries already have reached, or are approaching, the limits of their ability to borrow new funds.
But Anthony Solomon, under secretary for monetary affairs, said that "the system as a whole is not" in any danger in the sense that lenders are overextended or that many countries have not borrowed beyond their capacity to service debt.
He said that large balance of payments problems would continue "for the next several years" because the oil cartel's surplus will diminish only gradually. He therefore sounded a call, likely to be heard again next week at the annual joint meeting of the World Bank and International Monetary Fund, for "adjustment" of imblances - meaning belt-tightening within the borrowing countries - rather than simply "financing" the deficits.
Solomon gave these judgments in testimony before the Senate Subcommittee on International Trade in support of U.S. participation in a new supplementary financing facility of the International Monteray Fund.
This fund, called the Witteveen Facility for the IMF managing director, H. J. Witteveen, would provide an extra $10 billion line of credit to help IMF members finance balance of payments deficits. The U.S. share would be $1.7 billion.
Solomon also will testify today before the Senate Subcommittee on Foreign Economic Policy, which on Sunday delivered a grim assessment of the debt problem. Its lengthy report said that "an international debt crisis . . . is coming to a head," and warned that even a single default by a poor country could have a "domino" effect.
The report called the Witteveen Facility an inadequate response to the growing debt problem. It also said that "the real significance" of the Witteveen Facility is that it will give the IMF "more clout in putting pressure on the deficit countries" to retrench. In effect, the report suggested that the facility was set up to assure private banks that their loans could be repaid.
Although Solomon made no memtion of the subcommittee report, his own definition of the Witteveen Facility's function could be read as a response.
He said that the facility will not serve, as had been suggested, "to bail out" private banks or countries.
"It will encourage countries to initiate needed adjustment measures before their debts become too larger to handle or credit is no longer available, and it will provide transitional financing while the measures take effect," he said.
"It will help redistribute deficits to a more sustainable pattern and improve nations credit-worthiness and confidence in the monetary system."
Solomon also said that the facility is not a substitute for bank credit, and would give banks an incentive to expand by encouraging unsound economic policies on the part of the borrowers."
The Treasury official estimated that about $225 billion in balance of payments debts have accumulated in the three years (through 1976) following the five-fold increase in oil prices, and that only $15 billion, or 7 per cent, was financed by the IMF.He said this figure now would increase a bit, but the bulk of the financing would continue to be handled through the private marked.