Debt Relief Advocated For Third World Nations

Reducing the amount that Latin American debtor nations must pay U.S. commercial banks is a necessary part of any solution to the international debt problem, economic experts said last night in a panel discussion hosted by the Center For International Affairs (CFIA) student council.

"Debt relief is necessary to inspire confidence in the developing countries," said Henry Frothingham, vice president of the Bank of Boston's international division. Frothingham said that, if unresolved, the debt crisis "could lead to the collapse of the Western world."

Jorge Pinto, Mexican minister for economic affairs in Washington, D.C., told a Lamont Library audience of more than 100 that his country needed a reduction in its debt payments so that it could grow economically. "We cannot pay if we do not grow. Trade and foreign investment are not enough," he said.

The panelists said that the flow of money out of debtor nations is one of the causes of their current financial troubles. One reason for the money drain is that "privileged elites" take these loans and re-invest them in the U.S. for personal profit, said Professor of Economics Jeffrey D. Sachs.

Debt relief allows developing countries to pay less than the contracted amount. Sachs said relief could be accomplished by lowering the interest rate or lowering the amount of the principal that has to be paid.

"By giving relief now, the banks are going to do better and the countries will do better in the long run," Sachs said.