Clausen, Citing Third World Debt, Calls for U.S. Leadership

A. W. Clausen, President of the World Bank, has called on the U.S. to take a "more prominent role" in the coordination of world economic policy in order to prevent "long term weakening effects" on the legitimacy and stability of world political and economic institutions.

In a speech to the World Affairs Council of Boston in December, Clausen stressed the growing dependence of the U.S. on trade with developing nations, and warned that "the slump in Third World development is ... aggravating unemployment in the United States." "For the first time since the Second World War," he said, "the momentum of Third World development has, for the most part been broken." These trends, said Clausen, make "U.S. interests in Third World development now stand out more than ever. "

Clausen called on the United States to "elicit coordinated action by other nations if it is to lead effectively." He listed four major areas of concern: macroeconomic policies, the dangers of protectionism, U.S. contributions to the World Bank, and support for developing countries. He reminded his audience that the Bank is a good investment that "has never suffered a loss or default, and... earns a profit every year."

Clausen, former President of Bank of America, expressed fears that U.S. banks are holding back on loans to developing countries. "The most worrisome upshot of the Mexico liquidity crisis," he said, "is that commercial banks... may curtail their lending to all developing countries."

Clausen's warnings to the U.S. underline the increasing role of trade within the U.S. economy. According to World Bank and State Department figures, trade - especially with the Third World - effects U.S. employment and economic performance far more than it did 10 or 15 years ago:

• Foreign countries buy 24% of total U.S. agricultural production, 25% of U.S. construction and mining machinery, and 22% of U.S. aircraft production.
• U.S. exports of goods and services have risen from 6.4% of the GNP in 1970 to 12.2% in 1980.
• The U.S. now sells 38% of its exports to developing countries, more than it sells to all of Europe and the Soviet Union combined. According to the Bank, exports accounted for 27% of all growth in civilian employment in the U.S. between 1977 and 1980.
• Debt problems in Latin America have drastically lowered the value of U.S. exports to the region. According to the Journal of Commerce, in the first ten months of 1982 the value of U.S. exports to Mexico fell 32% from 1981; to Argentina 42%; to Brazil, 9%; to Chile, 35%; and to Peru, 24%. Economist Barry Bosworth of the Brookings Institute told the Journal that a large export drop this year could lower the U.S. GNP by 1%.

American exporters are extremely worried about this drop, and have been pressuring the government to help them out. In response to a strong lobby campaign by a coalition of 41 companies, 14 unions and 14 governors, President Reagan has reversed his two-year opposition to the U.S. Export-Import Bank. In his State of the Union message on January 25, Reagan called for an unprecedented $2.7 billion increase in the Bank's lending authority for 1984. "We must have adequate export financing to sell American products overseas," he said. The Export-Import Bank has already asked for a 50% increase in its loan authorization for 1983.

But for U.S. exports to increase, markets are needed. To support the continuing growth of the developing countries, The World Bank has initiated a new cofinancing program to increase the participation of commercial banks in these countries. Announced in January, the pilot program is designed to guarantee the loans of "second-line" banks - small and regional banks not connected to the major institutions - to ensure the continuing flow of cash to developing countries. $500 million has been allotted, which the Bank says will generate a total of $2.5 billion in additional loans for power, energy, agricultural and other economic development projects in the Third World - programs that depend on imports from the developed countries.

The World Bank and the multinationals are clearly worried. As the Journal of Commerce remarked last month, "for the first time... Americans are learning how their fortunes are tied to those of such nations as Brazil, Mexico and Argentina, where U.S. banks have made heavy loans to finance development."

This article was based on a report by Louis Spiegler