Key members of the Senate banking committee have agreed with the administration on a "clean bill" to increase the resources of the International Monetary Fund and encourage stiffer supervision of overseas bank lending. The committee will begin the markup today.
Meanwhile, Treasury Secretary Donald T. Regan told reporters that international debt problems remain "very worrisome." He also foreshadowed a report due to be released on Friday on exchange rate intervention, saying that there will be much discussion in coming weeks on "how major nations are going to get their currencies more stable" but "I don't see at this time the world is ready" for a return to fixed exchange rates.
Finance ministers of the seven nations that will attend the economic summit in Williamsburg next month will meet Friday to discuss a jointly prepared study on the effectiveness of exchange rate intervention. The U.S. Treasury has opposed intervening in foreign exchange markets to influence currency rates, while some European nations, particularly France, have argued in favor.
Regan yesterday said about intervention that "the dollar market is so large" that "I cannot see it." On Friday, there would be "very little movement in the U.S. position I suspect," he said. But Regan also indicated concern about currency movements, saying that "there has to be a better way . . . the looseness now is very disconcerting for international trade." He said that it will likely take two or three more years before the Treasury is ready with any proposals to overhaul the world money system.
After the foreign debt crisis was triggered last year, officials have been extremely concerned about the dangers of a sharp reduction in bank lending. Regan yesterday warned that banks were pulling out of foreign lending "to the point of concern," and charged that Brazil--the world's largest debtor by some calculations--was being "crippled" by the refusal of some smaller banks to make good their commitments to restore short-term lending to the nation.
The Treasury secretary warned that if banks shrink lending sharply, "I'm afraid that this would seriously harm recovery" in the United States by limiting the ability of developing nations to export.
Congress wants to demonstrate its concern about the threat posed to U.S. banks by their huge loans to the Third World. Senators on the banking committee initially wanted to impose country lending limits on banks. However, banking regulators said such limits would be very difficult to set and to implement. The regulators converted into legislation their original proposals for tightening the regulatory procedures governing international lending. On Monday, Sens. Jake Garn (R-Utah), John Heinz (R-Pa.) and William Proxmire (D-Wis.) of the banking committee signed off on the banking regulators' proposals with the addition of language to require that regulators establish capital adequacy requirements by which to judge individual banks. This "goes beyond international lending" and will affect domestic lending as well, a committee source said yesterday.
A committee amendment to the bill would require the administration to consult with "the appropriate committees of Congress prior to voting for" any IMF program for a nation that has import restrictions disallowed under international agreements and damaging to the U.S. exports and employment. The administration has not taken a public position on this amendment.
Regan said that one factor holding up interest rates was that banks were anxious to build their earnings, which have been hit by poor loans both domestically and overseas.
He also emphasized the connections between international monetary issues and trade, saying "why do you have an international monetary system? It's to facilitate trade."