The so-called Baker debt initiative needs to be flexible enough to meet the enlarged borrowing needs of countries hurt by the collapse of oil prices, International Monetary Fund chief Jacques de Larosiere said yesterday.
In an address in Los Angeles to the World Affairs Council, de Larosiere said that the favorable effects of lower oil prices and declining interest rates have been offset by the new problems of Third World oil exporters such as Mexico.
These "countries now face financing gaps that are larger than anticipated," he said. "The system will have to face up to these challenges. These new developments also reemphasize the continuing relevance of the case-by-case approach to the debt problem."
Baker had proposed that 15 hard-pressed borrowers get an additional $20 billion in commercial bank loans, and that the multilateral development banks boost their loans to the same countries from $4.5 billion to $9 billion over the next three years. In return, the borrowing countries would stress market-oriented policies.
De Larosiere emphasized the need for the industrial nations to go beyond the Baker initiative by improving "the global economic environment."
He described the responsibility of the industrialized nations as fourfold: to boost official development assistance; to encourage lower interest rates; to keep their markets open to Third World exports; and to contribute to expanding, noninflationary demand.
"Such a role is in their self-interest," he said. "For as imports and economic activity grow in the indebted countries, so too will the exports of industrial countries to them, thereby helping to sustain their own expansion."
He pointed out that, after "a relatively good year" for economic growth, imports and exports of developing countries in 1984, the momentum faded in 1985: Export earnings, for example, dropped by 1 percent (in dollar terms) after a rise of 11 percent in 1984.
Moreover, net new lending by commercial banks to developing countries, after rising by 7 percent in 1983, went up only 3 percent in 1984 and came to a virtual standstill in 1985. Per-capita incomes in many of the developing countries are below the pre-crisis levels of 1982.
De Larosiere emphasized the need for the industrial nations to meet the goals of the Baker initiative by improving "the global economic environment."