In an extremely gloomy report, the World Bank yesterday reported that Third World debt last year increased only about 2 percent, to $1.19 trillion -- a development that bank officials labeled "bad news" because it shows that borrowers "have not moved significantly towards regaining creditworthiness."

Despite an economic recovery now entering its sixth consecutive year in the richer nations, the Third World debt problem "has not begun to near a solution," said Jean Baneth, director of the bank's international department. "By many measures, it has worsened."

He said it was unlikely that enough new steps could be taken this year to allow Third World countries to improve their economic growth rates. Nonetheless, Baneth said, "I am confident that sooner or later, something will come along {to improve the situation.} I am confident that managers will act to prevent a breakdown."

Inattention to these problems, Baneth said, could result in "destruction and disorder."

The report said that earlier hopes that the debt burden would be "progressively diminished" had not been fulfilled.

Instead, according to Baneth, "income, consumption and, most ominously, investment in the indebted developing countries have declined ... to the levels of the 1970s."

In the case of the poorest countries of Africa, he said, these levels have actually fallen back to those that prevailed in the 1960s.

The report added that Brazil suspending interest payments to private creditors a year ago and major banks raising their loss provisions "were both symptoms of growing frustration and fatigue at the lack of progress in resolving debt problems."

Increases in interest rates late in 1987 "and the uncertainties generated by the crash of world stock markets left well-founded concerns that the debt burdens of {middle-income countries} would increase in 1988," the report said.

Last year, real interest rates in developing countries declined to about 2.5 percent, about one point below the real rate in the United States.

The real interest rate level is calculated by adjusting nominal rates paid on floating-rate dollar debt for changes in a country's export prices.

For the fourth consecutive year, debtor nations in 1987 sent more money to rich nations in interest payments than they received in new loans, according to data issued by the bank.

This "net negative transfer" of $29 billion was second only to the $30.7 billion outflow of 1986.

Net lending flows -- new loans less repayment of principal -- were up about $1 billion, to $26 billion, in 1987.

The bank pointed out that this total was only 40 percent of the average level between 1978 and 1983, when commercial banks were pumping money into the Third World at an extraordinary pace.

The small increase in private lending was almost wholly associated with new money packages for Mexico and Argentina, and with refinancing of some Korean debt. "These transactions aside, there was no indication of a revival in private lending to the developing countries," the report said.

Baneth painted a picture in which global economic growth will slow down not only this year, but also in 1989 because of trade imbalances and exchange rate problems among the major powers.

He called for "more direct means of assistance" to the indebted countries, but said that debt relief, as urged by some politicians and academic experts, could not be considered "a general panacea for the problem."

Stanley Fisher, new chief economist for the bank, differed somewhat from Baneth on debt relief, saying cautiously that "some debt relief will be a part of the solution."

"The World Bank is willing to put forward its good offices" to help, he said.

Like Baneth, Fisher doubted that there will be "a massive, overall solution" to the debt crisis based on writeoffs or other forms of debt relief.

But Fisher visualized "progress in new ideas," such as the recent plan for Mexico.

In that proposed arrangement, Mexico will offer new bonds to lenders willing to accept a writedown, up to 50 percent, of their original loans.

Some observers say that U.S. Treasury participation in the plan -- through sale of zero-coupon bonds to Mexico to serve as security for the new Mexican bonds -- amounts to a reversal of the Baker Plan.

That plan, offered by Treasury Secretary James A. Baker III in 1985, proposed new lending, but not debt relief, to Third World countries that generated economic reform.

The official Treasury position is that debt relief would be counterproductive, discouraging Third World economic reform.

Baneth said that although it is clear that low-income countries, especially in Africa, need a measure of debt relief -- if it does not come at the expense of new aid -- "the principle of self-help" must still apply on a case-by-case basis to the better off "and very diverse" middle-income countries of Latin America.

He added that internal discussions in the bank cover "every possible and impossible approach" and argued that not every country needs or can actually use debt relief.