Sometime this year the foreign debts of the developing countries will reach $1 trillion, a figure that commands uneasy respect. The question keeps coming up: are these debts manageable? The total is now rising about 6 percent a year, the World Bank reports. The rise is far less rapid than it was five years ago, but it's sufficient to stir the recurring fears that new debt is merely being piled on old debt.
But new borrowing is essential to any hope of keeping the old debts under control. That is the paradox of the developing countries' finances. The debts have to rise, if these countries are to carry them successfully. To service their present debts, these countries will need steady economic growth. To keep their economies growing, they will need an inflow of capital. What counts is the use to which the new money is put and whether it generates enough earnings to show a profit.
The current squeeze on the biggest borrowers was caused by unprofitable and reckless borrowing, for purposes that had no hope of paying off the loans. Some countries borrowed simply to lift consumption -- as, incidentally, the United States has been doing for the past several years. Some borrowed to finance capital flight. Some borrowed for development projects that were badly designed. In the 1970s, a time of low interest rates and easily available credit, lending standards were slack. Now another set of rules applies.
Getting the developing countries' debts under control is going to take more than prudence on their part. The World Bank, in a rather somber preface to its latest debt tables, describes 1985 as a disappointing year. Although interest rates and inflation both fell, commodity prices continued to decline and the previous expansion of world trade slowed sharply. The commercia banks, frightened by the troubles of the developing countries, kept reducing their lending -- aggravating those troubles further.
In the borrowing countries, thriftiness alone won't suffice. But economic growth can be a highly threatening prospect. Economists always seem to say that everyone welcomes growth as a matter of course, but in fact growth often demands changes in established and cherished national policies. It means opening half-closed economies to world competition and foreign investment. It means ending traditional subsidies to favored enterprises, in turn jeopardizing governments' political support.
In terms of technical economics and finance, this trillion dollars' worth of debt is manageable. Whether it will actually be well managed depends on decisions by governments and banks, here in Washington and around the world, reaching far beyond economics.