One or two major corporations may not make it through the recession, and the administration will not offer assistance if they fail, Commerce Secretary Malcolm Baldrige said yesterday.
While talking to reporters at a breakfast meeting, Baldrige was asked whether the United States will get through the recession without a major corporate bankruptcy.
"Probably not," he replied. "My instincts tell me there may be one or two," he continued, but he did not predict which major companies might have to file for bankruptcy. He said the problems these corporations might face weren't created by President Reagan's economic recovery plan, but were built up over 15 years.
"I don't know that the administration can or should do anything in credit allocation or subsidization" for failing companies, Baldrige said. "I don't think that helps the economy on the whole."
When told that Baldrige had said possibly two major firms might not make it through the recession, Tom Hyland, a vice president for ratings at Standard & Poors' Corp. said, "That's all? He must be optimistic."
A recent survey by Dun & Bradstreet said business failures increased 50 percent during the first 11 weeks of this year to 4,846 compared with 3,224 during the same time last year. The businesses surveyed were in manufacturing, wholesaling, retailing, construction and service, and did not include finance, insurance, real estate, professions and farmers.
Standard & Poors' has given "speculative" credit ratings to a number of major companies, and analysts with the rating service said a handful of these could fail during the year if economic conditions don't improve. Those with "speculative" ratings, indicating serious financial problems, include International Harvester Co., Chrysler Corp., Braniff International Corp. and Pan American World Airways Inc., according to Standard & Poors' analysts.
Baldrige reiterated his belief that the economy will improve by about June. He said it may be "a month, maybe two" before the leading economic indicators start to improve. He said one problem is increased unemployment even after the economy rebounds. "It always increases after the bottom has been reached," Baldrige said. Unemployment last month reached the post-World War II high of 9 percent.
Baldrige said there was "widespread agreement that we'll have a recovery. The problem is, will it be a weak and shortlived one or a strong and steady recovery?" Baldrige said he doesn't know which one it would be.
"The big question is the strength and duration of the turaround and that will depend on what happens with interest rates," Baldrige said.
He added that he believes the financial markets have been too pessimistic about the administration's economic plans, and he doesn't see why they have kept interest rates so high for so long.
"It's up to Congress and the administration to put their fears to rest," the Commerce secretary said.
However, Baldrige said the projected deficit for 1983--a key reason for the lack of confidence in the economy--could be $20 billion to $30 billion higher than earlier estimates. That would require the administration and Congress to cut $75 billion to $85 billion more from the budget to hold the deficit to $100 billion.