Former World Bank President Robert S. McNamara says the cash crisis in the debt-laden developing countries is greater than projected a year ago, but he is more optimistic now that the world's debt problems can be solved.
And in a separate report released today, the Inter-American Development Bank said high unemployment and recession in Latin America could lead to social and political unrest if governments do not try to share more equally the burden of the economic crisis.
The IDB's annual report noted, however, there are strong reasons to expect that the recession-hit nations of Latin America may be able to resume strong growth sometime in the future, although they will likely have to survive with much less cash from overseas.
McNamara, secretary of defense in the Kennedy and Johnson administrations, made his remarks last week at a news conference on a study he co-authored for the Trilateral Commission on economic problems in the developing world. The remarks were embargoed for today to coincide with the formal release of the report, much of which was made available in Rome last April.
The Trilateral Commission is a private group of about 300 business executives, bankers and others from North America, Europe and Japan who meet yearly to discuss common problems of economics and security.
McNamara said there seems to be growing awareness on the part of governments that troubled countries like Mexico and Brazil can solve their debt problems, but that they may need increased economic assistance to give them "more breathing room."
He cited the U.S. Export-Import Bank's decision to grant Brazil $1.5 billion of credits and Mexico $500 million to enable those countries to buy much-needed U.S. products at lower interest rates.
The Ex-Im Bank credits must be approved by Congress. But U.S. legislators generally have been more amenable to granting Ex-Im Bank credits than to voting for increases in the U.S. contribution to official international agencies like the International Monetary Fund and the World Bank. This is mainly because Ex-Im credits finance only U.S. exports and are generally thought to create jobs in the United States.
McNamara and his co-authors--Japanese banker Takeshi Watanabe, founding president of the Asian Development Bank, and French economics professor Jacques Lesourne--said in the report that the problem in the debt-ridden developing countries is primarily one of liquidity--temporary shortage of cash--rather than of solvency, the long-term lack of resources to repay debt.
In order to solve liquidity problems, developing countries need more assistance both from banks and from official sources, McNamara said. But countries like Brazil, already in the third year of a deep recession, may need more time to take some of the steps prescribed by the IMF to enable them to end high inflation and reduce the need to borrow, he added.
The steps required by the IMF are the proper ones, McNamara said, and the "only issue is how quickly do you do it and in what amounts." For example, Brazil used to allow wages to grow as quickly as inflation. But under pressure from the IMF, it has agreed to permit wages to grow at only 80 percent of the inflation rate, a painful move that will reduce consumer purchasing power in recession-torn Brazil.
McNamara said there is no doubt that Brazil will be better off when the relationship between inflation and wages is "broken." But it also creates "a lot of pain among low income people," he said.
"If we can't deal with our adjustment the big federal deficit , how can we expect others to make harder adjustments in a shorter period of time," he said.
Nevertheless, McNamara said, developing countries must take the primary responsibility for solving their economic problems. He said officials in those nations are "far more receptive to accepting that responsibility" than in the past.
The Third World debt crisis has hit Latin American nations particularly hard, because several major countries in the region were heavily dependent on foreign banks for cash to fund development.
In its report, the IDB says that "in the present situation the prospects for external financing are not very promising" and suggests that countries such as Brazil and Mexico will have to rely more in the future on foreign investment capital and official loans from governments and international agencies than they did during the 1970s.
The employment situation in Latin America and its negative impact on income distribution "foreshadow an escalation in social and political tensions," the report said, warning that governments should distribute more equitably "the cost of the adjustment of the economies during the present recession."
About 30 percent of the labor force in Latin America was unemployed or underemployed in the 1981-'82 period, "which means that a growing number of workers are idle or that their already low incomes have been reduced." The report said noted that although unemployment in industrialized nations has also risen in recent years, the jobless in the poorer regions of Latin America are both more numerous and worse off.
The steep recession in the region marks a sharp contrast from rapid rates of growth in the past, the report says.
The Latin American economy, which had grown at real annual rates of 5 and 6 percent for two decades, grew only 1.4 percent in 1981 and declined 1.2 percent last year, the report said. Jorge Ruiz Lara, deputy manager for the 43-nation regional development bank, said in the study that the decline may be even greater for 1983--perhaps 1.5 percent--with possible improvement in 1984.
Latin America's per capita gross domestic product fell 1 percent in 1981 and more than 3 percent in 1982, the report said, "Thus, by the beginning of 1983, the gains made in 1979 and 1980 in raising standards of living had been wiped out."
The report says manufacturing industry has been especially hurt by the world recession and high interest rates of recent years and "is in the midst of what may be the most serious situation to confront it in the 20th century."
After being an engine of growth in the region for decades, manufacturing output "has increased at rates below those of the economy as a whole in six of the last eight years," the IDB said.