The Bush administration, in a policy shift one week after riots in Venezuela, outlined a new plan Friday to slash the crushing Third World debt burden that threatens Latin American democracies.
The recipe for easing the debt crisis, while portrayed by officials as an extension of existing policy, eases away from the 1985 "Baker Plan" that had favored new lending instead of debt forgiveness.Treasury Secretary Nicholas Brady unveiled the proposal at a conference on foreign debt attended by members of Congress, the heads of major banks and international lending institutions.
Arguing that the problem is international in scope and so complex that "no one nation can provide the solution," Brady called for a "great cooperative effort" among all nations.
"Our objective is to rekindle the hope of the people and leaders of debtor nations that their sacrifices will lead to greater prosperity in the present and the prospect of a future unclouded by the burden of debt," Brady said.
The Bush proposal endorses efforts on the part of commerical banks to forgive part of the $400 billion they are owed by the largest debtor countries such as Brazil, Mexico and Venezuela.
To encourage the banks, the administration called on the 151-nation World Bank and its sister organization, the International Monetary Fund, to help provide guarantees for the remaining debt owed by the poor countries.
The government of Mexican President Carlos Salinas de Gortari called Brady's suggestions "a first and positive response to Mexico's position" and said it "expresses its gratitude and support for these initiatives."
The government said that Salinas had instructed Treasury Secretary Pedro Aspe to meet as soon as possible with Brady to continue exchanging ideas on the subject.
Sen. Bill Bradley, D-N.J., a frequent critic of the Reagan administration's debt policy, called the new proposal "a significant change of direction." But he said it would have no chance of success unless the administration named a special "debt ambassador" willing to work long hours to ensure that the effort got off the ground quickly.
Foreign reaction was generally favorable, with Japanese Finance Minister Tatsuo Murayama telling reporters in Japan that his government welcomed the initiative and had pledged financial backing. The United States is counting on Japan to recycle a portion of its huge trade surpluses into support for Third World countries.
President Bush had ordered Brady to take "a whole new look" at the Reagan administration debt policy, put forward by Secretary of State James A. Baker III in 1985 when he headed the Treasury Department.
The debt-related riots in Venezuela, one of the most politically stable democracies in Latin America, had added urgency to the review. Last week, more than 300 people were killed in disturbances that erupted after the government announced new austerity measures aimed at satisfying international creditors.
The Reagan administration had long rejected the idea of broadbased efforts to forgive foreign debt. It had favored increased lending by commercial banks in hopes of keeping alive the chance for full repayment - in return for economic steps on the part of the debtor nations.
Brady predicted that his proposal, if fully accepted, could "accelerate sharply the pace of debt reduction and pass the benefits directly to the debtor nations."
While initial reaction was generally favorable, former Federal Reserve Chairman Paul Volcker cautioned against looking for a single "magic elixir" to solve the crisis. "If not well-managed, a process of debt reduction clearly could be hazardous to the health of debtors and creditors alike," Volcker said.