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Show i FOREIGN DEBT: TIME BOMB OR MANAGEABLE MATTER? Debt piled up by developing nations is giving rise to fresh concern in world banking circles, finance ministries, and the U. S. Treasury. Yet the consensus con-sensus of those most knowledgeable about such matters is that the fiscal problems of foreign governments can and will be managed. In their view, the resources of the central banks and of global lending agencies are amply able to take care of new crises. They assume, of course, that world business will continue to expand steadily even though slowly and that inflationary pressure will be controlled. controll-ed. Their optimism arises from the relative aplomb with which earlier debt crises of Mexico and Brazil were handled via bail-outs and rescheduling. reschedul-ing. Their confidence is shared by a number of businessmen here and abroad and by investors in U. S. securities markets. FLASHING YELLOW LIGHTS It must be conceded, however, that there is a group of international bankers, economists, and government officials in the U. S. and key foreign countries who don't agree with the consensus of optimism with regard to the debts of developing nations. These experts point out that Mexico, Brazil, and Venezuela will soon require large cash bail-out loans to handle their old debt repayments andor meet the requirements re-quirements of the International Monetary Fund (IMF). These three Latin American countries, coun-tries, plus some other nations, will need to borrow sizeable sums between now and the end of '83, and such borrowing bor-rowing will place considerable strain on their resources and on world credit resources, especially including those of private lenders. Their demands for new loans will come at a time when loans will be hard to get as is even now the case. For banks in Europe and the U. S. have become more wary of all foreign loans. Indeed, a good many banks, both here and abroad, want out of the foreign lending business. One reason: They worry about what could happen if a sovereign nation were to default. SOVEREIGN FAILURE TO PAY UP Babson opinion is that the foreign debt situation is serious but that it would be more serious if the global economy had not shown firm signs of turnabout some months ago. Our view is that developing crises in debtor nations na-tions will be relieved, and possibly resolved, via timely and ample interventions in-terventions by central banks and gobal lending agencies. Private lenders will still help too, though on a scale down from earlier commitments. We think there's only small probability pro-bability of sovereign nations failing to pay up. Such defaults are rare, partly because the penalty for default is harsh. A nation that doesn't kick in as promised under the terms of the loans it has negotiated could have its exports and assets abroad seized by creditors. And, of course, its default would effectively ef-fectively shut it off from bank or foreign government help. While such a default might not necessarily result in mass global bank failures, it could be a painfully serious development for U. S. banks involved and would weaken our whole domestic banking system. WHAT TO EXPECT The current shift of U. S. and other banks away from foreign lending will likely prove temporary, but it could well become more pronounced over the next few months, making it harder for developing countries to raise the $15 to 20 billion they need. Nearly half the three-quarters-of-a-trillion-dollar debt of these nations is owed to private banks and there are more than 25 countries that are behind on their interest in-terest payments. Yet a distinct though narrow consensus consen-sus affirms that this huge debt is still manageable, that developing loan and cash flow emergencies can be eased and, in time, fully defused. They base their confidence on constraint, cooperation, freer trade and inflation control. |