President Reagan has decided at least for the time being not to provide federal financial assistance to prop up the ailing Farm Credit System, administration officials said yesterday.
Reagan approved a position paper from his Economic Policy Council that calls for internal management reforms in the farmer-owned lending system and more regulatory enforcement powers for the Farm Credit Administration, which oversees the FCS.
The decision to withhold federal bailout assistance, however, apparently does not mean that such aid would not be forthcoming later on.
Agriculture Secretary John R. Block told reporters yesterday that the president "has not closed the door on anything in terms of providing help to the Farm Credit System." White House officials said, however, that any future federal aid would come only after Congress had passed legislation effecting the recommended reforms.
The president's decision came as the House and Senate Agriculture committees began hearings on credit problems in the troubled agricultural sector, focusing on the FCS, which holds about a third of the nation's $214 billion in agricultural debt. A growing portfolio of bad loans, with projected potential losses of $6 billion in the next several years, has brought intense political pressure on Congress and the administration to move to shore up the FCS.
In testimony earlier this week, FCS officials and Donald E. Wilkinson, head of the Farm Credit Administration, warned of devastating impacts on the national ecomomy if Washington did not come up with $5 billion or more in immediate aid for the cooperative lending system.
The president's decision seemed certain to stir new political troubles for the administration, which is under heavy attack by farm-state legislators for its efforts to scale down costs of pending farm-support legislation.
House committee members, for example, were startled yesterday to hear Frank W. Naylor, an undersecretary of agriculture, say that the government "has rejected direct support" of the FCS, which he described as "one of the strongest financial institutions in the country."
Naylor conceded, however, that the network of 37 banks and more than 700 lending associations is in "a serious situation that must be dealt with." He said that determining how much help the system needed was "a judgment call" that could not be quantified.
White House officials said the policy paper Reagan approved does not mention the concept of extending a Treasury line of credit to the FCS.
Block, however, said the administration would not leave the system "high and dry," although he said "the president hasn't put any money on the table yet." He also agreed that the FCS situation is urgent and that "we need to solve this before the end of the year."
Naylor started the day by appearing to play down the FCS problems and saying that the administration would assess the need for federal aid only after the system has made internal management changes and the Farm Credit Administration is given more power to regulate the FCS.
House committee members pounced on him relentlessly and turned the second day of hearings on FCS problems into a diatribe against the administration's insistence that farm commodity and income-support programs be cut sharply -- a virtual replay of the debate over a farm bill passed by the House earlier.
"You've delivered a namby-pamby statement that shows no sense of urgency," said Rep. Dan Glickman (D-Kan.). "We need to know what you are willing to do."
"Nothing in your proposal would help the farmer become solvent enough to pay back his loans. A bailout won't help. The thing to do is help the farmer," said Rep. James Weaver (D-Ore.).
Weaver and others warned that as long as farm prices remained depressed, land values would continue to plummet in the hard-hit Midwest, further eroding the FCS loan portfolio and dragging other sectors of the economy into the vortex.
Iowa Gov. Terry E. Branstad (R) and other witnesses from farming and rural activist groups told the House panel that the economic miasma is deepening and can be solved only with urgent congressional action to help the FCS and provide other credit relief to strapped farmers.
Branstad, who has declared an economic emergency in his state, scored the administration for "stonewalling" the farm debt issue. "A lot of people in this city would like to see it go away," he said.