G-7 cannot agree on Third World debt

Press, 4 April 1989, Page 38

G-7 cannot agree on Third World debt

By

RICH MILLER

of Reuters in Washington

Financial leaders of the main industrial nations left little doubt that they know how to cope with a runaway dollar, but seemed less certain about the best way to aid the debt-ridden Third World. In a communique issued after marathon talks, the powerful Group of Seven (G-7) economic policymakers were unanimous on how to cut the soaring dollar down to size — sell it — and quickly backed up their words with action. Barely an hour after the group released its statement in Washington, the Bank of Japan stepped into the curency market in Tokyo to dump dollars, dealers in Asia said.

Tokyo’s action was particularly telling because it was the lone hold-out among central banks in an attack on the United States currency last week, and has not sold dollars for years. The G-7 nations — Britain, Canada, France, Italy, Japan, the United States, and West Germany — are afraid the surging dollar will upset their three-and-a-half-year-old plan to put lopsided world trade patterns back into better balance.

"We reviewed the exchange markets and agreed that a rise or an excessive decline of the dollar would be counter productive,” the United States Treasurj Secretary, Nicholas Brady, said. Mr Brady also confidently declarec that he had won the G-7’s support for his plan to help the debt-laden Third World But some of his European colleagues were more circumspect. The West German Finance Minister, Gerhan Stoltenberg, emphasised that key aspects of Mi Brady’s plan to slash Third World debt must b< studied further before they can be put into action Washington wants a quick agreement, worriet that the growing mountain of Third World deb will spark an economic crisis in Latin America and undermine democracy there. In what some Latin Americans warn could be t taste of things to come, Venezuela was tom bj riots in February as demonstrators protester against Government-imposed austerity measure: to cope with its SUS 32 billion (SNZ46 billion debt.

After eight hours of talks on a secluded estati outside Washington, the United States could onlj count on the support of Japan, and to a lessei extent, France for its debt plan. Other European members of the G-7 seemer unwilling to be rushed into action, mainlj because they think Mr Brady’s scheme is a thinlj disguised bail-out of commercial banks. The main sticking point is Mr Brady’s proposa to use pools of funds from the Internationa Monetary Fund (IMF) and World Bank to hel[ debtor nations pay off their interest bill. In the end, the two sides merely agreed tha the issue deserved fuller study.