A proposal to overhaul the Baker debt initiative and provide substantial interest rate relief and other concessions to major debtor nations is circulating at a high level within the World Bank.

The suggestions were contained in a memorandum sent this week to other members of the executive board by Ferdinand van Dam, executive director for the Netherlands and other countries. It elicited a favorable comment at a Tuesday board meeting from Edgar Gutierrez-Castro, executive director for Colombia and some other countries, who said he would bring Van Dam's ideas to the attention of his Latin American colleagues.

In a telephone interview, Gutierrez-Castro said that the proposal "makes a lot of sense" because it would end the World Bank's present untenable situation in which, in effect, its expanded lending program is bailing out the commercial banks.

Gutierrez-Castro also represents Brazil, Ecuador, the Philippines, the Dominican Republic and Haiti at the World Bank.

Van Dam's memo contends that the Baker plan, in its present form, is not attractive to either the major debtor countries or the commercial banks.

He said that even last week's new aid package for Mexico, hailed in many quarters as the first significant implementation of the Baker plan, "is primarily a matter of crisis management, and cannot be considered a general attack on the debt problem."

The Baker plan -- outlined by Treasury Secretary James A. Baker III in October -- calls for an increase in commercial bank loans of $20 billion over the next three years; a $9 billion increase in World Bank and other development bank loans over the same period, and accompanying economic reforms in the borrowing countries.

Since then, according to Van Dam's memo, World Bank loans to 10 of the 15 countries on Baker's list have increased by 47 percent, while commercial bank lending has stagnated. If continued, this shift "will result in the relative bailing-out of the commercial banks by the World Bank," the memo said.

Gutierrez-Castro agreed that recent experience shows that the commercial banks aren't doing enough for the debtor nations. "But there is no reason why the World Bank should substitute for the commercial banks," he said. "It makes no sense to speed up loans from the World Bank, unless on an equivalent basis there are more loans from the commercial banks."

The proposal rejects any write-off of debt, as recently suggested by Sen. Bill Bradley (D-N.J.), because that "will severely damage the relations between the debtor countries and the capital markets."

Among Van Dam's basic recommendations were that:The Baker plan should be extended, on a case-by-case basis, from three years to six years for countries that show a per-capita real growth rate of at least 1.5 percent and can promise "a reasonable degree of certainty" for servicing their outstanding debt. The World Bank should make concessions in the debtor nations' repayments schedules to assure "a substantial positive net transfer" of funds to those countries over the six-year span. During the last fiscal year, the memo said, there was a negative transfer payments from the debtors to the World Bank for Bolivia, Brazil, Ivory Coast, Mexico, the Philippines and Yugoslavia. To reverse that trend, the bank would have to reschedule up to 25 percent of its outstanding loans, and boost the pace at which it is making new fast-disbursing loans. The commercial banks should reschedule their loans, without charging rescheduling fees, and allow the countries to refinance existing debt at the LIBOR rate, without charging refinancing fees. LIBOR is the acronym for the London Interbank Offered Rate, roughly equivalent to the U.S. prime rate. Third World countries typically are charged some percentage rate above LIBOR. The memo said dropping to LIBOR would cut interest levels by 1.5 percentage points.