The Brady Plan On Debt Relief Is Stalling Out
When Treasury Secretary Nicholas F. Brady unveiled a new U.S. strategy in March 1989 to reduce some of the huge debt Third World nations owed to commercial banks, his aides listed 39 nations that might be eligible for help.</br></br>Brady's was a revolutionary idea, compared with the idea that had preceded it. Brady contemplated actual debt relief or forgiveness, financed by about $30 billion put up by the World Bank, the International Monetary Fund and Japan.</br></br>The old strategy, the Baker Plan, called for new loans on top of the old ones. That practice simply helped debtor nations pay off interest obligations, while preserving the fiction that the banks' loans were still productive. Write-offs force the banks to acknowledge real losses.</br></br>Nineteen months after the inception of the Brady Plan, however, the great majority of poor countries are still overwhelmed by massive commercial debt, their economies laid to waste by high unemployment and negative per-capita growth induced by failure to control their exploding populations. The biggest single act on the debt-relief front was a diplomatic gesture arising out of the Persian Gulf crisis: American forgiveness of $7 billion owed by Egypt (which wasn't being paid anyway).</br></br>The Brady Plan, at $30 billion, is under-funded. But in today's capital-short global economy, it's hard to believe that additional funds for debt relief can be found. Meanwhile, the flow of regular loans has been reduced to a trickle, in part because the borrowing countries have largely quit making payments to the banks-and because some banks, especially in America, are going through hard times.