It isn't surprising, given the concentration on the October collapse of global stock markets and the saga of the declining dollar, that many took their eyes off the continuing Third World debt crisis.

But two events snap us back to attentive reality: Mexico was forced to devalue the official peso exchange rate by 22 percent, reflecting the fact that reports of a great recovery were illusory. And the Bank of Boston, facing the inevitable, decided to write off -- not merely add to its loss reserves -- $200 million of its Third World debt.

That marks the first time since the debt crisis began in 1982 that a major U.S. bank has charged off some debt. Now that the Bank of Boston has had the guts to do it, other regional banks, and perhaps even one of the big money center banks, may follow suit.

The bank also said it was establishing a $430 million reserve for possible losses on its remaining $800 million in Third World loans, which are mostly owed by Latin American countries.

Consulting economist Norman A. Bailey congratulated the Boston bank, where the decision was made by President Ira Stepanian. "They weren't satisfied just reserving against the debt, a halfway step," Bailey noted. "They said: 'We're going to write off a substantial part of it.' "

Stepanian's decision may help put an end to the nonsensical effort by banks to pump money into Latin American countries to enable them to pay interest on old loans. That falsely makes the banks' old loans look good. But by cooking the books in that fashion, the banks allow the total amount of debt to get larger and larger, ever more difficult to pay off. And that, by the way, has been the underlying weakness of the famous "Baker Plan," initiated by the American secretary of the Treasury two years ago at the IMF-World Bank meeting in Seoul.

In a paper not yet published, Bailey and economist Alfred J. Watkins observe that, until a few weeks ago, the financial community was singing the praises of Mexico. Its financial reserves were said to be growing, and it was showing a positive balance of payments.

But such an accounting was deceptive: almost all of the progress thus displayed was at the expense of domestic economic growth. The Mexicans understood the phony nature of the numbers. The price of servicing debt was to allow the painfully limited Mexican standard of living to slide further. Hence the peso panic and ultimate devaluation.

Our banking community and some of our political leaders have regularly promised solutions to the debt problem that were never there. Soon after the first Mexican crisis, Mexico was hailed as a big success story. Then, Brazil became the model debtor, only to plunge into an economic morass and a moratorium on debt payments announced last spring. There is an open question as to whether Brazil will resume interest payments next year, as it is slated to do.

Insiders say that Argentina is likely to declare a moratorium on most of its $35 billion debt in the next few months, which might accelerate more write-offs like the Bank of Boston's.

The situation cries out for strong leadership from some national or international authority. The Bank of Boston's action, and the economic crisis in Mexico, Brazil and elsewhere in Latin America, make it abundantly clear that a large portion of the debt owed by developing nations is worthless. European and Japanese banks have been willing to recognize this fact earlier.

Sen. Bill Bradley (D-N.J.) has consistently argued over the past couple of years that piling more debt on the Third World borrowers is hardly the answer. He warns that disaster lies ahead if Latin governments continue to try to generate trade surpluses, while imposing austerity at home, in order to get the cash to help pay off debt.

In a recent speech, Bradley asked how Mexico can accommodate a projected 50 percent increase in its work force in the next decade without huge internal investment. "But how can it invest {at home} while paying foreign creditors 7 percent of its gross national product?" he asks. "Absent more investment and less debt service, the result is sure to be mass unemployment, social and political turmoil and an enormous wave of illegal immigration to the United States."

Even worse, in the long run, the trade surpluses the debtor countries are trying to create (at the expense of growth at home) are mirrored by the U.S. trade deficit. At some point, to restore its own solvency, the United States will have to wipe out its trade deficit. But there are no visible signs that leading policy-makers are preparing for the problems that will face the global community when -- as Bradley says -- "the U.S. trade deficit no longer absorbs surplus production."