The World Bank has a mandate to play a lead role in a new global strategy calling for a "quantum leap" in loans to Latin American countries, bank President A. W. Clausen said yesterday.
In a speech to Latin American government and business leaders at the central bank of Argentina, Clausen said the goal of the new strategy is to regenerate sustained economic growth in each of the heavily indebted countries of the region.
"We pledge to you that we will be long-term, constructive partners of yours" in an effort to raise living standards in Latin America, he said.
The text of Clausen's speech was released in Washington.
The main thrust of Clausen's remarks was to assure a high-level Latin American audience that the demand for austerity keyed to the International Monetary Fund's loan rescue programs over the past three years is being replaced by an emphasis on economic growth to help Third World debtors pay off their loans.
"We are not talking simply of marginal increases in resources to support merely fundamental programs of adjustment. That is absolutely not an adequate response to the problem. We are talking about programs that address problems that were not addressed in the initial response to the debt crisis," Clausen said.
Clausen praised "the courage and skill" of the Argentine government in curbing inflation and setting that nation "back on the path of growth." Argentina is widely reported to be first in line to benefit from the more forthcoming loan strategy.
World Bank officials here said that the agency's loans to Argentina in fiscal 1987 might be double the $400 million target for the current fiscal year -- which in turn is more than double World Bank loans of $180 million in fiscal 1985.
The new global debt strategy, set in motion by a speech by U.S. Treasury Secretary James A. Baker III in October at the World Bank/IMF annual meeting in Seoul calls for stepped-up loans from commercial banks as well as from the multilateral development banks, including the World Bank. But it also requires, as Clausen reminded his audience, altered Third World domestic policies designed to prevent "a low investment-low growth trap."
Baker asked the commercial banks to increase their commitments by $20 billion over the next three years, and said the World Bank and the other development banks should boost their loans in the same period to $9 billion, a 50 percent increase over earlier plans.
Clausen said the idea behind this approach is to allow each Latin American debtor country "to achieve a reasonable rate of growth, and substantially reduce its debt-service ratio to a sustainable level by a specific date." He gave no details on the amount of new loans planned for each debtor country, but said that each would have to be tailored to the individual circumstances.
Clausen said it is necessary to break the "vicious circle" in which many Latin debtors have been caught: They must earn more on their exports to pay for the crushing burden of interest on their foreign debt. But the savings that might finance new investments in export industries "are already mortgaged to meet debt servicing obligations."
He estimated that World Bank loans to Latin America in the fiscal year ended June 1985 had risen 21 percent over the previous year, and added that over the next few years, "we can and should do vastly more for those willing to design and implement truly bold adjustments programs."
Clausen said that the underlying goal of the new strategy, in collaboration with the IMF, is to get growth "not simply for growth's sake, but growth designed to help alleviate poverty."
He noted that the price that Latin American countries had had to pay for a "remarkable" reduction in their current account deficits was "very high," with per-capita income pushed back to the level of the early 1970s.
Clausen said the World Bank had overestimated the willingness of commercial banks to resume their voluntary lending, and "we underestimated the degree of suffering there would be" until sustained economic growth could be restored.
Since there are still few signs that the commercial banks are ready to take on substantial new loans on their own initiative, Clausen said concerted action along the lines recommended by Baker must be taken by all the affected parties.
This, he said, includes new efforts by Latin American debtor nations to resume their growth, especially by pushing exports of manufactured goods, and to change their priorities for investment from highly capital-intensive forms to those that will provide jobs.
Clausen said the World Bank would play three distinct roles. First, it will help shape and monitor the overall country programs. Second, it will make much bigger loans. And third, "it will act as a catalyst in the mobilization of capital from other sources," he said.
Clausen, who will retire in mid-1986 at the conclusion of a 5-year term, visited Uruguay before going to Buenos Aires, and left after his speech to discuss economic problems in Ecuador.