World Bank President A.W. Clausen hinted yesterday that the World Bank is willing to divert more of its resources into "structural adjustment loans" to help stave off the possibility that some poor nations will have to default on their international debt.
In an address before a United Nations General Assembly committee dealing with economic affairs, Clausen also called on leading governments to encourage "a disciplined expansion" of the world economy because the current prolonged recession is threatening "the whole edifice of international cooperation."
He cited, as well, the "compelling comparison" that had been made by U.N. Secretary-General Javier Perez de Cuellar between spending for defense and economic development: "We struggle for a few hundred million dollars in international development assistance, while the world is spending hundreds of billions a year on arms," Clausen said. This is "a global absurdity" that must be reversed," he added.
Many private experts have urged greater involvement by the bank and the International Monetary Fund in emergency lending to Third World countries because -- as Clausen himself said in his speech -- commercial banks have been responding to the debt crisis by curtailing new credit.
"The bank has repeatedly adapted to meet the changing needs of its borrowing member countries, and we are changing now to help counter today's adverse conditions of slow growth, increased poverty and faltering cooperation," Clausen said.
He promised to cooperate with all public and private institutions seeking to ease this problem, assuring at the same time that the bank's normal "project lending" would go forward as usual.
In calling for at least a modest effort to expand the global economy, Clausen said it is "urgently needed" to reduce unemployment and alleviate poverty -- and could be managed without regenerating a new wave of inflation.
He argued that, with much of the world economy stagnating, protectionist lobbies "have grown stronger and more demanding," even though it is obvious that the world economy cannot work "if all countries try to expand their exports but at the same time limit imports from other countries.
"We have simply got to get the message out that free trade fosters growth, and that cheaper imports of food, clothing and other goods help in the fight against inflation," he told the audience in New York. The right alternative to protectionism is to phase out declining industries, with help to the companies and individuals affected, he added.
Clausen said that the ministerial meeting of the General Agreement on Tariffs and Trade in Geneva later this month "offers a once-in-a-decade chance to turn the tide against the waves of protectionism that threaten to overwhelm us."