We are not the only ones facing economic hardship. The world economy is in serious trouble. The evidence is everywhere, in massive national debts, rising unemployment, declining trade volume and idle factories.
Yet, some Americans retain a curious illusion that we can separate ourselves from the global economy. We hear a lot of talk these days in support of protectionist legislation and in opposition to providing additional resources to multilateral institutions such as the International Monetary Fund.
It is dangerous talk. We will only hurt ourselves if we ignore the stake we have in a global economic renewal.
The facts are stark. Exports as a share of the U.S. GNP have doubled in the last decade. We now export roughly 40 percent of our total agricultural production. One out of every eight U.S. manufacturing jobs produces for export. Almost 20 percent of our industrial production is exported.
We are in trouble when Brazil and Mexico face economic hardship, because they are big traditional users of U.S. goods and services. When they reduce their imports as part of an economic austerity program, it is our exports that are being cut.
The banks on Main Street America are in trouble when debtor nations can't service thd it. eir loans. Across the United States, there are hundreds of banks with loans to financially troubled foreign borrowers. They face losses that could threaten their survival, yet it is beyond the capacities of the managers of these financial institutions to solve their problems. Solutions may exist, but they aren't to be found in the board rooms of these banks.
The challenge we face, therefore, is not to figure out how we can say no to the IMF and lock out the Japanese but how, in cooperation with our economic partners, we can restore the health of the international economy.
It won't be easy. The industrial West is gripped by a severe recession. The OECD estimates that between 1981 and 1984 unemployment in member countries will rise from 25 to almost 35 million. Between 1979 and August 1982, commodity prices fell by approximately 30 percent. They are, at present, at their lowest level in a generation, reflecting greatly reduced global demand for primary exports.
The less-developed countries (LDCs) are laboring under massive external debts (over $500 billion in 1982) contracted largely in the last decade at a time of relatively low real interest rates. They now face high real interest costs and greatly reduced demand for their exports. More and more countries are having to go to their bankers for help, with Mexico and Brazil at the head of the line.
Their problem has been described as one of liquidity, not solvency. Major borrowers are retrenching, but if that process of retrenchment is not to be politically and economically catastrophic they need fresh financial resources.
The international financial community has, in recent months, had to leap repeatedly to the rescue of financially troubled borrowers, most notably Mexico in August and Brazil in December.
But we cannot go on applying Band-Aids to problem countries. A comprehensive approach to these global economic problems is called for. Additional resources for the IMF may be part of the solution, but they are not the whole solution.
We must give careful thought to three problem areas in particular. First, we need a far more accurate and current data base with respect to levels of indebtedness and the extent of the lines of credit available to major foreign borrowers. We cannot go on being repeatedly surprised by major borrowing nations unable to service their debts.
Second, we need to consider whether gaps exist in the present institutional framework between the World Bank, which engages in long-term project lending, and the IMF, which provides short-term balance-of-payments support. It is not clear that institutionally we are fully prepared to deal with either crisis situations or long-term adjustment problems.
Finally, we need to take a hard look at the existing regime of flexible exchange rates. The rapid and extreme fluctuations in exchange rates are contributing to dangerous distortions in the global economy.
The Senate Foreign Relations Committee is holding hearings this month and next on stresses and strains in the global economy. We are hearing from a number of former secretaries of the Treasury, together with other expert witnesses on the nature of our economic problems and the avenues for addressing them.
But our need is not just economic, it is fundamentally political.
A national consensus must evolve in this country around the proposition that cooperation not confrontation is required if the world economy is to be rescued from its present unhappy state.
This means that the unemployed worker in Baltimore, Chicago, or even Detroit, needs to see that his hope for a better future may lie in the restored economic health of countries as close as Mexico or as far away as Romania. That, in fact, their problems are our problems.
One of the major challenges the 98th Congress will face is to foster just such a consensus. Without it, we risk deepening our already very serious global economic difficulties. With it we may be able to move to a better economic future for ourselves and for other nations around the world.