THE TREASURY ministers of the 10 richest industrial countries, meeting in Paris, seem to have made good progress. Their job was to work out an agreement for a rapid increase in the International Monetary Fund's capacity to lend to countries in trouble. The rich countries have come to realize that the IMF is their best and, probably, only hope for avoiding defaults on international debts--defaults that would severely disrupt their own domestic banking systems. By lending to countries in trouble, the IMF keeps the lines of credit and trade open. If the rich countries provide enough money in time, the IMF will succeed in preserving stability as economic growth slowly resumes and the present strains diminish.
But should that system of lending be preserved? Should the United States use its dollars to help countries that have borrowed more than they can currently repay? Sen. Charles McC. Mathias and his Foreign Relations subcommittee are now holding a series of extremely useful hearings on those questions. The simplest answer is that foreign defaults, and economic decline in Third World countries, destroy markets for American exports and wipe out jobs here. But there's more to it. What do you say to the accusation that Mexico and Brazil just borrowed too much?
As the economist Lawrence B. Krause put it to the Mathias subcommittee, "Interdependence works in both directions; it spreads prosperity when the world economy is expanding and it spreads recession when the world economy is contracting." Brazil, Mexico and the others were well able to carry their debt until the recession in the industrial world curtailed their exports earnings, and soaring interest rates in New York and London increased their debt payments beyond any previous expectation. The countries that borrowed most heavily were those most committed to raising their own people's standards of living, as Mr. Krause observed. "This is not to suggest that there were not instances of excessive borrowing, but in the main foreign indebtedness was undertaken within a reasonable domestic setting--that is, growth and debt go together."
A sudden end to borrowing would mean, for those countries, dire austerity for their people. The IMF has a duty to set certain conditions on its loans, to ensure that they are used well. But the IMF and the governments that set its policy--most prominently, the U.S. government--have an equal duty not to ignore the social consequences of those conditions. It's not the interest rates that ultimately matter. It is the employment rates and, beyond them, levels of nutrition and death rates. Those are the realities with which the finance ministers and the bankers are now dealing.