World economy in danger period

Press, 10 January 1983, Page 24

World economy in danger period

NZPA-Reutcr Washington

The international financial system faces a dangerous three-month period that could determine whether there will be a major economic collapse similar to the great depression, according to the United States economist, Mr Alan Greenspan. Mr Greenspan, the chief economic adviser to former President Gerald Ford and head of President Reagan's National Commission on Social Security, said the chances of a depression were small, but still far higher than at any other time since the 19305.

“It’s obviously very significantly greater than one in a thousand... but small, like one in ten or maybe one in twenty,", he said in a television interview.

“We are in a very dangerous period now as, far as international finance is concerned... If we get through the next three months things may begin to look 'a good deal better than they have in.recent days,” he said.

Mr Greenspan said a depression was possible only “on the basis of breakdown

of the international financial structure."

A deepening worldwide recession and worsening debt problems in many countries have put heavy strains on the system causing many analysts to fear for its survival in its present form. Reagan administration officials have said they believed the system evolved since World War II will weather this period but the going will be tough. U.S. Treasury secretary. Mr Donald Regan, said recently that the global monetary system was inadequate and should be reviewed to make it less volatile.

Mr Greenspan warned of the dangers posed by the debt problems of countries like Mexico, Brazil, and Argentina. “We have been very successful so far in staving off any pulling back by the private commercial banking system,” he said. But taking Mexico as an example, he said: “A lot of these loans are short term and the real danger is the equivalent of a run on a bank could occur. A lot of the small and medium-sized banks would be unwilling to renew or reschedule loans."

Mr Greenspan said this would pose very significant problems for the international financial system and create “a degree of crisis uncertainty.” "This is the type of thing which would lead to a depression,” he added. He said there had been “a degree of imprudence” on the part of banks lending to developing countries over the past six or seven years.