Treasury Secretary Donald T. Regan said that, although many nations are having a hard time repaying their foreign debts, the "extraordinarily difficult" international financial situation can be managed.
However, the international financial problems "will not manage themselves," Regan told the House Banking Committee.
He called for a sharp increase in the resources of the International Monetary Fund, which makes loans to nations in trouble. Regan told the banking committee, which is holding hearings on the international financial crisis, that the administration anticipates asking for authority to boost the U.S. contribution to the fund by $8 billion. All told, the major industrial powers want to add about $20 billion to the IMF's roughly $40 billion of resources.
Regan was subjected to harsh questioning from Democrats on the committee, who warned him that the party, which will add 26 seats to its House majority, will not acquiesce to administration economic policies in the next Congress.
Regan said the extreme difficulties of three Latin American nations -- Brazil, Argentina and Mexico -- whose combined debt totals $195 billion could pose major "problems for the international financial system as a whole, with adverse consequences for the United States and prospects for recovery."
However, he said, major steps have been taken toward resolving those problems--including emergency loans from the United States and other nations, renegotiation of credit terms with private bank lenders, internal austerity programs to reduce the needs of the three countries to borrow, and help from the IMF.
These steps, Regan said, "can provide both an example and a basis for confidence that the problems confronting the system as a whole can be managed."
But Regan faced skeptical and sometimes hostile questioning from the Democratic majority on the committee, ranging from retiring former chairman Henry S. Reuss of Wisconsin to freshman Charles E. Schumer of New York.
Reuss accused the Reagan administration of creating the recession that triggered the world's economic crisis through its economic policies of big military budgets, sharp reductions in tax revenues, big budget deficits and "adherence to a faddish monetary policy."
"To leave that course uncorrected and spend further billions of dollars" bailing out countries and the banks that lent money to them is "missing the point," Reuss charged. Reuss said he hoped Democrats next year would say, "No change in course, no IMF assistance."
Schumer, from Brooklyn, warned Regan that "you need us. For two years you didn't" because the Reagan adminstration could put together a coalition of conservative Democrats and Republicans that narrowly outvoted mainstream Democrats. "We have a little leverage and plan to use it," Schumer said.
Committee Chairman Fernand St Germain (D-R.I.) said he was not ready to vote for an increase in IMF resources, calling IMF rescue operations a bailout of major banks.
Regan said the International Monetary Fund is not bailing out the banks, which are required to increase their lending to the troubled countries. Instead, he asserted, the IMF is assisting the nations themselves, which have been battered by high interest rates, high oil prices and a worldwide recession that has driven down both demand for and prices of the commodities they export.