Secretary of State George P. Shultz appealed yesterday for $8.4 billion in U.S. support for the troubled global economy, but lawmakers warned him that their constituents are skeptical.
Testifying before the Senate Foreign Relations Committee, Shultz depicted expanded U.S. backing for the International Monetary Fund as "an investment in international financial well-being" necessary to keep afloat debt-ridden developing countries and the international economic system.
One after another, senators asked Shultz to provide politically saleable and specific arguments that they can present to constituents who do not want to "bail out the banks" and who oppose foreign assistance while Americans are suffering at home.
Shultz provided cool, economic answers, in keeping with his long experience as a professor of economics, but little he said seemed to satisfy the political needs of the senators.
Sen. Rudy Boschwitz (R-Minn.) called the secretary's statements "fairly esoteric." Sen. Larry Pressler (R-S.D.), fresh from 25 meetings with troubled and angry constituents, said there has to be a meeting of the "two worlds of foreign policy"--that of the State Department and Senate committee and that of an increasingly unhappy Main Street.
Questioning in a two-hour hearing suggested that many senators are looking for ways to combine approval of global support funds with restrictions on international commercial banking, a gesture of their opposition to high-flying global lending.
The dramatic rise in international debt, which jumped sevenfold in a decade to a global total of nearly $700 billion, was partly due to "many bad judgments" in the 1970s, Shultz said. He added, though, that lenders and borrowers acted on assumptions about the economic future that seemed reasonable at the time.
Shultz said general guidelines on overseas lending for U.S. commercial banks are "probably a good idea," but he opposed a government takeover of bank risks or a requirement that all commercial loans be submitted for an advisory opinion from the IMF.
One way to deal with the international economic crisis, he said hypothetically, would be to insist that nations and banks pay for their mistakes and "let the system go down the drain." But he said this would have a catastrophic effect on the world economy and, in turn, on a U.S. economy increasingly dependent on international commerce.
Despite debtors' troubles and the problems of repayment, Shultz said, U.S. banks must continue to make loans abroad. If one bank withdraws from global lending, others will seek to do so, leading to a possible bank run on the international economy, he warned.
Shultz expressed intense concern about protectionist pressures and what he called "trade-distorting practices" that advance one nation's interest at the expense of the international trading rules and system.
An example of such a practice, one of "the insane things" nations are doing, he said, was the administration's decision last month to sell heavily subsidized wheat flour to Egypt in order to take that large agricultural market from the French. Shultz said the decision can be justified on the grounds that "when all the world is mad, 'tis folly to be sane." But he left no doubt that he is unhappy about it.
Shultz also criticized proposals to sell butter abroad "through an insane system of subsidies" that would offer the spread to Soviet buyers at one-fourth the price paid by U.S. consumers.
State Department officials are increasingly upset by moves to bolster U.S. farm exports through subsidies and credits that violate international trade rules, in retaliation for similar action by foreign nations. In an effort to head off an all-out "trade war" in grain and other products, U.S. and European Community official representatives have held two rounds of meetings in recent weeks, without success.
"We have to shake people and say, 'Wake up, world,' " before an agricultural trade war starts, Shultz said. If the United States undertakes competitive subsidies, it could have "a devastating impact" on world markets because "we have a very deep pocket," he said.
Still another problem for the U.S. and global economies are volatile changes in interest rates, including the strong dollar that has made U.S. exports much less competitive abroad.
Shultz recounted recent sharp swings in the ratio between the dollar and the Japanese yen. Careful U.S. studies found "no evidence whatsoever" that the Japanese have been maneuvering the value of the yen, he said.