The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. Leading the news this Wednesday, Pres. Bush said there is a good likelihood a START Treaty will be ready for a spring summit, the Senate passed a compromise anti-drug plan and the education summit opened in Charlottesville, Virginia. We'll have the details in our News Summary in a moment. Judy Woodruff is in New York tonight. Judy.

MS. WOODRUFF: After the News Summary, the education summit is our [Focus - Education Summit] lead focus. We have a report on what it's all about from our Education Correspondent John Merrow. Then a close look at the implications of the takeover [Focus - Sony - Movie Mogul] by a Japanese giant, the Sony Corporation. We talk with three interested observers, author and professor Susan Tolchin, Wall Street analyst David Londoner and independent film producer David Brown. Next, a rare [Focus - Bond Buccaneers] behind the scenes look at the people who trade in third world debt. Business Correspondent Paul Solman is our guide. And finally a News Maker interview with Poland's finance minister [News Maker]. NEWS SUMMARY

MR. LEHRER: Pres. Bush said today he and Soviet Pres. Gorbachev may have a strategic arms treaty to sign at their spring summit. Mr. Bush said it at a small question and answer session with reporters in the Oval Office.

PRES. BUSH: I think the setting of a summit perhaps will serve as a catalyst for moving forward. It is not a given, it's not absolutely certain that that's going to happen, but I would agree that we have a good likelihood that might happen.

MR. LEHRER: Mr. Bush rejected a Soviet counter offer on chemical weapons. He had proposed at the United States mutual cuts of roughly 80 percent, while waiting for a total ban treaty. Soviet Foreign Minister Shevardnadze said, why not eliminate them all? Pres. Bush said today some deterrence and leverage was still needed. Defense Sec. Dick Cheney issued a report today that said the Soviet military was still a threat to the survival of the United States. He spoke to reporters at the Pentagon.

DICK CHENEY, Secretary for Defense: In the midst of all of the discussion and the hope and optimism I think most Americans feel about the prospects for a less hostile and less threatening international environment in the future, we have to remember that as of today Soviet military capabilities are formidable, that they retain the largest military forces in the world, and that they continue to modernize and upgrade those forces.

MR. LEHRER: Cheney also said Soviet Defense Minister Dimitri Yazov will visit the United States next week. He said Yazov will be welcomed at a Pentagon ceremony Monday and will tour military facilities and visit with defense officials. Judy.

MS. WOODRUFF: Poland's new finance minister said today that his country is looking for $500 million from Western governments to cover essential imports. The official, Leszek Balcerowicz, said the money is needed in addition to the $1 billion Poland is already seeking. Earlier today Pres. Bush sent mixed signals on Polish aid. During a speech to the International Monetary Fund, he said the West must do more. But in a session with reporters, he said any additional U.S. help beyond that already promised would depend on the success of Poland's economic reforms. Democratic Congressional leaders reacted immediately, calling the President far too timid.

MR. LEHRER: And this was day one of the education summit. The governors of the 50 states and Pres. Bush met this afternoon on the campus of the University of Virginia in Charlottesville. Mr. Bush told reporters before leaving Washington that more money was not the answer to the education problem. Democratic Gov. James Blanchard of Michigan wrote a presummit open letter to Mr. Bush urging expanded federal expenditures in education.

MS. WOODRUFF: Also today, the President said he will not be deterred by rumors that Colombian drug lords have threatened to kidnap one of his five children. The threats have reportedly been aimed in particular 30 year old daughter, Dorothy LaBland. The President confirmed that secret service protection for his children had been increased. Meanwhile, the Senate overwhelmingly passed a bipartisan compromise position of Mr. Bush's plan to fight the war on drugs. The Senate version adds about $1.5 billion to the President's proposal, bringing the total drug package for next year to $9.4 billion. Most of the added money would go for treatment, education and rehabilitation programs.

MR. LEHRER: There was another taking of the 5th Amendment today at the Housing scandal hearings. Lance Wilson, a former assistant to then Housing Sec. Samuel Pierce, claimed the right to remain silent. Yesterday Pierce himself invoked the same right before the House subcommittee hearing evidence on abuses at HUD, the Department of Housing & Urban Development. Earlier another Pierce ex-assistant, Deborah Gore Dean, did the same.

MS. WOODRUFF: Overseas in the Philippines, Vice Pres. Dan Quayle ran into more anti-American crowds today. Police had to use tear gas and fire rifles into the air to disperse more than 1000 protesters who converged on the presidential palace in Manila. During her meeting with Quayle, Philippines Pres. Corazon Aquino accepted a U.S. offer to discuss the future of U.S. military bases on the islands.

MR. LEHRER: The Sony Corporation of Japan has agreed to buy the American movie company Columbia Pictures. The Sony announcement said the deal was for $3.4 billion in cash. The sale includes the 49 percent of Columbia owned by the Coca-Cola Company. The announcement said the transaction should be completed by early November. There was also some news today from OPEC, the oil cartel. Ministers of OPEC's 13 member countries agreed in Geneva to raise their production in the final months of the year, but the Associated Press said experts believe it is not expected to have much effect on the worldwide price of oil.

MS. WOODRUFF: A twin engine commuter plane crashed at the Grand Canyon Airport today, killing at least 10 people. It is believed 11 others were seriously injured. There were conflicting reports as to whether the plane was taking off or landing at the time of the crash. The plane belonged to Grand Canyon Airlines which is based at the airport located in Arizona, about five miles South of the Grand Canyon. The craft was carrying passengers on a sightseeing excursion when it hit trees and power lines before flipping over and crashing. That's it for our summary of the news. Just ahead on the Newshour, the education summit, Japan takes a bite out of the U.S. movie industry, a new angle on third world debt, and an interview with Poland's finance minister. FOCUS - EDUCATION SUMMIT

MR. LEHRER: The first story tonight the Governors of the 50 States and President Bush took their respective places today in Charlottesville, Virginia. Education Correspondent John Merrow previews the problems and the prospects.

MR. MERROW: It would be difficult to improve up on the symbolism, the Nations first Education Summit the President and all 50 Governors meeting here at the University of Virginia. The University which was created by a President Thomas Jefferson who considered creating this University as great accomplishment that any thing he achieved during his Presidency but more than symbolism is expected eight months in to what George Bush pledged would be an education Presidency and more than symbolism is needed despite record spending, $5250 per student achievement levels remain the same but the drop out rate is going up. This afternoon in his opening remarks to the Governors President Bush returned to familiar themes.

PRESIDENT BUSH: Today millions of Americans can not read, some never even make it to graduation dropping out of school and society as well. Drugs have invaded our class room, violence has entered our school years and clearly the enlightened American dreamed of by Thomas Jefferson still eludes us.

MR. MERROW: Education experts say this Summit will either demonstrate the President's commitment to education or leave him open to criticism. To much talk not enough action. inevitably George Bush's actions will be compared with the deeds of other Presidents. Dwight Eisenhour pumped millions of federal dollars in to public schools after the Russians launched Sputnik, their first space satellite in 1958.

PRESIDENT LYNDON JOHNSON: On this occasion the American people and our American system are making history. For so long as man has lived on this earth poverty has been his curse.

MR. MERROW: In Lyndon Johnson's war on poverty many of the battles were waged in the class room. His head start program continues today.

PRESIDENT JIMMY CARTER: It was Dwight Eisenhour who found it difficult and some what embarrassing that month following the Soviet launching of the first Sputnik found the National Defense Education Act. It was Lyndon Johnson who at a time of great social unrest found a landmark elementary and secondary education act.

MR. MERROW: And Jimmy created a Department of Education elevating education to a Cabinet level. But only George Bush made education a central theme in his campaign.

PRESIDENT BUSH: Education is the first step on the ladder to economic empowerment and that is why I want to be the education President.

MR. MERROW: Bush made that commitment against the advice of his media consultant Roger Ailes.

MR. ALIES: There is always a tendency to push toward the issues which are safer for you and in which you already in effect a pre sale with the public but education was one that he insisted on running on. The polling people will tell you that is not a great issue for a Republican Candidate because it is a much harder sell because a Democrat will say I want to run on education and I am willing to commit 800 gillion dollars to it and people say hey that is great and George Bush said I know that education is very important to all sorts of problems and I don't have all the answers but I intend to run on this issue.

MR. MERROW: Having run and won as education President George Bush now has to deliver and that may be difficult because Public Schools are administered on a State and local level not in Washington. Bush has proposed adding only a modest 441 million dollars to the Education Departments 22 billion dollar budget. That is a 2 percent increase. More than 1/2 of that request would be distributed as cash awards to outstanding schools.

PRESIDENT BUSH: Further expansion of Public School choice is a National imperative. It is a widely popular idea, as you know, and it enjoys unusual bi partisan support.

MR. MERROW: At the heart of the President's Blue Print and a subject he highlighted again today in his opening remarks to the Governors is a plan called choice which would allow parent to shop for the best Public Schools for their children. In theory the competition for students will force schools to improve or go out of business. For some educators choice is not a remedy. Richard Miller is Executive Director of the American Association of School Administrators.

RICHARD MILLER, American Association of School Administrators: Well if they continue to promote choice as the panacea for the improvement of education without restructuring and reforming education then it is smoke and mirrors.

MR. MERROW: Dorothy Rich is the Director of the Home and School Institute in Washington, D.C.

DOROTHY RICH, Home and School Institute: Up to this date we have not seen the kind of remedies proposed that would really make a difference in the attitude about what our children need to have in order to learn.

KEITH GEIGER, National Education Association: What he has done he has increased in some areas at the expense of other areas.

MR. MERROW: Keith Geiger is President of the National Education Association the Union which represents nearly 2 million teachers.

MR. GEIGER: I think what we need to see is a long range plan and see what that means in all of these areas and see what the Federal responsibility is, what the State responsibility is and what the local responsibility is. We just haven't seen that to this point.

MR. MERROW: Well he has been President nearly 9 months. Can you give him a grade as Education President.

MR. GEIGER: Well I think the grade at this point would be an incomplete.

SPOKESMAN: We would give him a low C high D in terms of any significant thrust toward education.

MR. MERROW: Bush's education initiatives have also received poor marks from Democrats in Congress. Last week Democratic Leaders tried to reclaim the spotlight by announcing their goals for education including a lower drop out rate, fewer illiterates, and more student grants. Massachusetts Senator Edward Kennedy.

SENATOR EDWARD KENNEDY, [D] Massachusetts: We are challenging the President of the United States who wants to be the education President. We in the Congress are committing ourselves to be the Education Congress.

MR. MERROW: When the President asked for the Summit last July educators were cautiously pleased.

MR. GEIGER: We give the President an A for calling the Summit. I think that it was an absolute stroke of genius. I think now what we have to do is to reserve comment. Number one to see whether this is truly a Summit on education on whether it becomes a political Summit.

MR. MERROW: But Geiger and other educators were disappointed they were not invited.

MR. GEIGER: We would have liked to have seen some of the education community and the business community invited to the Summit.

MS. RICH: I'd love to be there and I think that it is essential that they hear from the Public.

MR. MERROW: Were you invited to the education Summit.

MR. MILLER: We asked for an invitation for our President. Yes sir.

MR. MERROW: And?

MR. MILLER: We got a nice letter back indicating that there were many people who had volunteered to be a part of that and they were going to have to make some decisions and we understand that.

MR. MERROW: They said no?

MR. MILLER: In essence.

PRESIDENT BUSH: Fact is the Governors does not mean we want to limit the input to Governors alone. So I hope that some of you are working with the Governors as well as with the White House.

MR. MERROW: Although educators are not officially invited to the Summit the President has held private talks with education groups. Even though some educators are worried that this Summit will turn out to be just PR, an extended photo opportunity for President Bush, that has not stopped those same educators from working very hard to try and influence this Summit's agenda by lobbying Governors in their own home States or traveling here to Washington to meet with White House Staff or to testify at hearing conducted by the National Governors Association.

SPOKESMAN: I seems like the first thing that you and the President need to work on is establishing a mission and goals for education and that is to put in place a process that is conclusive.

MR. MERROW: The two Governors who conducted these hearings, Democrat Bill Clinton of Arkansas and Republican Carroll Campbell of South Carolina are taking the Summit meeting seriously. Is part of your job as Governors as education Governors to educate George Bush.

GOVERNOR CAMPBELL: Yes I think so.

GOVERNOR CLINTON: I agree with that. Again you have to give him credit for calling us in. THis is not his issue he has never been a Governor. He has never been called upon to deal with this. A lot of us have been working this years and years and he has been very forthright in saying one of the things I want out this is for you to tell me what works and what doesn't and what you think I need to do and I think that our job is to help him learn so that he can be an education President.

GOVERNOR CAMPBELL: I think that we can identify some national needs in education. What do the citizens of America have to achieve in education to be literate in the World in the year 2000. The year 2010.

GOVERNOR CLINTON: I would like the President to commit to a plan, a national plan for education with very clear specific goals.

MR. MERROW: Educators want more than a national plan they want more money.

MS. RICH: He has going to spend some money.

MR. GEIGER: I think that you have to have more money there is no question about it.

MR. AILES: I think that teachers unions always get together and say we are not getting enough funding. This is automatic, I mean, you know we got to have the funding. Well, of course, you have to have funding but if money alone were the answer to education all of our kids coming out of high school would be getting in to college.

MR. MERROW: You say George Bush cares about education but how do you know that it true?

MR. AILES: I have spent a lot of hours with him talking to him and so on and he loves kids, I mean, he loves them. His kids every bodies kids. The guy in a campaign he sometimes drives you crazy going over and talking to the kids and he really believes, I mean, he is now 65, that the drugs and lack of education are the things that are going to ruin it for the next generation and he is determined to do something about it and you can just feel it in him. He cares.

MR. MERROW: Simply caring may not be enough. In fact, even the statement of national educational goals which the President and the Governors are expected to issue at the end of the Summit tomorrow may not satisfy educators, politicians and ordinarily citizens whose expectations have been raise by all the hoop la. One hopeful sign. All the working sessions on choice, teacher training, government regulations, school conditions, retraining adult workers and higher education are closed to the press and the general public. That suggests President Bush and the Governors intend to have serious and candid discussions about what can be done and who should do it.

MR. LEHRER: Still to come on the News Hour tonight Sony Goes to the Movies, Paul Solman on Debt and Poland's new finance minister. FOCUS - SONY - MOVIE MOGUL

MS. WOODRUFF: Next tonight we look at an East-West deal between Tokyo and Hollywood. The Japanese Sony Corporation today said that it has agreed to buy Columbia Pictures, the Hollywood Movie and TV Production Company, for about 3 and 1/2 billion dollars. This is the second foreign purchase of a Hollywood Studio this month after an Australian Company bought MGM. Sony is buying Columbia Pictures for lucrative hit TV shows like Designing Women and Whose the Boss. But the Studio's recent Box Office receipts on movies like Ghostbusters II, Karate Kid III and Casualties of War have not been as successful. This deal also gives Sony Columbia's library of 23,000 TV episodes and 2,700 movies. Coincidentally just last night the American Film was also in the thought of President Bush as he paid tribute to the American Film Institute's 25th Anniversary at the National Building Museum in Washington.

PRESIDENT BUSH: It is a part of our rich heritage, The mirror of America if you will and it is also in a sense the conscience of America. Hoosiers a marvelous portrayal of small town America and so I ask you to help AFI celebrate America and this magnificent heritage so that you and I can always say to understand the heart of America just look at the American Film.

MS. WOODRUFF: We now look at whether we can expect any change in American films by this new involvement by the Japanese and we examine the business implications of the Sony takeover with our guests. Independent Film Producer David Brown whose company does business with Columbia Pictures. Mr. Brown together with Richard Zannuck Produced the movie hits, Jaws, The Sting, The Verdict and Cocoon. David Londoner is a Managing Director and Media Analyst for Wertheim Schroder and Company, a New York investment firm. And in Washington is Susan Tolchin, Professor of Public Administration at George Washington University. She is also Co Author of Buying America, How Foreign Money is Changing the Face our Nation. Mr. Londoner let me begin with you. What is it about Columbia Pictures that Sony was so anxious to have?

DAVID LONDONER, Media Analyst: I think there are probably two things. One is clearly that Library which is a fine library. Not the best in Hollywood but is it a fine library. The other is the ability to produce movies and perhaps Sony's interest in it is in part relate to the amount of consumers electronics product that it gets out. Can you sell consumer electronics complete with software and get an increased market share.

MS. WOODRUFF: You are saying can they sell more TV sets, more VCRs?

MR. LONDONER: And some of the new products that they will come out with over the next ten years.

MS. WOODRUFF: Such as?

MR. LONDONER: Oh such as in the case of the record company they bought, they bought CBS Records recently. Digital tape. Can they put the catalogue on digital audio tape and immediately have a big catalogue. The optical video disk for instance which Sony is very interested in which is out now but has a very small market share. Could Sony market its optical video disk players in conjunction with some of the software that it is producing?

MS. WOODRUFF: But all of that is down the road. Right now we read that Columbia Pictures hasn't been doing so well in the movie end of the business. So is Sony going to make some money off this right away?

MR. LONDONER: I think it is going to take time.

MS. WOODRUFF: Three and a half billion dollars is a lot of money.

MR. LONDONER: It is really more than three and half. When you add in the debt it is closer to five that they are assuming and Columbia's operating earnings last year were a hundred and fifty million dollars, I mean, they are paying a very comfortably high price for it. Clearly they are buying something for what they think they can do with it.

MS. WOODRUFF: Alright Sony just two years ago bought CBS Records now they bought again another major entertainment movie production house. What position does this put Sony in terms of the whole entertainment industry?

MR. LONDONER: They are a factor in it. We only have now in the United States one major record company, Warner Records, MCA, which is a minor one. Bertlesman owns the RCA Record Company.

MS. WOODRUFF: Bertlesman being?

MR. LONDONER: Bertlesman being the German publishing combine. Thorny MI of course owns Capitol. Polygram is owned by the Dutch. The record companies, for instance, now are very largely foreign dominated. It doesn't seem to make a great deal of difference in the amount of records that are produced or the type of music.

MS. WOODRUFF: Do you see something going on here with so much more activity in terms of foreign buying, foreign buyouts of American firms?

MR. LONDONER: I think it's an investment. I think they're doing a job of international investing.

MS. WOODRUFF: All right. Let's turn to Susan Tolchin in Washington. Dr. Tolchin, is this good or bad for the U.S. entertainment industry?

SUSAN TOLCHIN, George Washington University: I think it's a wash in terms of the U.S. entertainment industry in terms of the money that's being made. Sony has made this as a good investment and I think there are lots of people who are going to make a lot of money out of this deal, so the individual participants are going to make a lot of money. I don't think it's good public policy for America, however, to allow this wholesale glut of its most precious assets without at least taking a good look at what it all means. Because of the drop of the dollar and other factors, American assets are now going very cheaply to foreign investors and they're going very fast. And this is just one example of a recent rash of these sales without really much public discussion about what it all means. This is particularly meaningful because we are selling in this particular sale a good part of our national heritage.

MS. WOODRUFF: Well, what do you think it does mean? I mean, you're saying we haven't examined it. You've obviously thought about it.

DR. TOLCHIN: I think it means that large percentages of American assets, petrochemicals, autos, machine tools and so on, are now being rapidly acquired by foreign investors and we have to ask the question should there be an American component in these major industries. I certainly think there has to be some American component in our cultural industries because there is the potential for influence. I don't know whether Sony will exercise that potential, but there is a potential there and when you look at Sony's track record as a foreign investor in this country, they have been very politically active if not the most politically active of all the foreign multinationals, and I assume they will try to exert influence through this particular company. They will own television production companies and television, as you know, is the most influential media in the country today. So I think it does carry the potential for influence and I think we have to take a good look at that and whether that's good public policy for America.

MS. WOODRUFF: Mr. Brown, is the U.S. losing control of its entertainment industry?

DAVID BROWN, Independent Film Producer: I don't think at all. I don't think it's bad at all. In the first place, everyone is acting as though there were some predators, foreign predators. For every foreign acquisition there has been a willing, indeed, a very cheerful American seller. These are not takeovers. These are investments that have been made with the acquiescence in one case of CBS, in the other case of now Columbia Pictures Industries and of course UA/MGM. I think that Japanese ownership through their history and tradition may prove to be more stabile in these not yet major acquisitions, the whole American heritage hasn't been sold. I think it's far better to be fired on by yen than by what we experienced 40 years ago when American scrap metal was being returned to us. Furthermore, quite respectfully, the Japanese, in my experience, are not censors, they're not people who are going to influence the creative input. They recognize the American franchise in entertainment not only as valuable but something they themselves cannot muster up.

MS. WOODRUFF: So you think they're going to stay hands off the content?

MR. BROWN: Yes.

MS. WOODRUFF: Ms. Tolchin.

DR. TOLCHIN: Sony, for example, spearheaded the effort in California and all over the country to repeal a corporate tax on multinationals called the unitary tax. They were the leading activist in this particular enterprise and I think the repeal of this tax will cause the taxpayers of California to lose between three and six hundred million dollars a year in tax revenue. They've been very active on trade legislation of all kinds, Super 301, and the disclosure amendment on foreign investment. They are very active and I suspect that perhaps in the future they will be active in this entertainment area as well.

MS. WOODRUFF: David Londoner, are you as worried as she is about U.S. assets going to the Japanese?

MR. LONDONER: I'm not terribly worried about it at all. I mean, I just can't quite picture them picking up the assets and moving to Osaka. Are they active in American government as any other corporation is? Sure they are. I don't see this as a problem.

MS. WOODRUFF: Mr. Brown.

MR. BROWN: I think it's a lesson to the American corporations if their boards of directors and shareholders are being enriched by these acquisitions, they're not looking at public policy. This is not a Japanese, German, or Dutch problem. If we in the United States do not wish to have our corporations controlled by foreign companies, then we have to have a different attitude. The Japanese are long-term players. They don't go quarter to quarter. They have to go up 10 or 12 percent. Therefore, we should look to ourselves and not abroad as to what we're doing, because we're doing it to us. And by the way I don't think the results will be bad. I think it will be a more stabile ownership than one film company that has recently been acquired, it's been sold three times in the last five years.

MS. WOODRUFF: Doesn't Mr. Brown have a point, Dr. Tolchin?

DR. TOLCHIN: I think he has a point and I think that Sony in particular is a very good company and I think this capital infusion will be very good from that perspective for the company, but there's another question that's raised here and that is our own laws discriminate against our own companies so Mr. Brown has pointed out that if we want this company, we should buy it ourselves. But the major networks, ABC, NBC, and CBS, were prevented from making this kind of purchase because they can't get involved in the resale of television programs. So here we are, this is a very good example of one of many laws in this country that discriminate against our own companies and favor foreign investors. We ought to take a good look at that.

MS. WOODRUFF: That's true. That's true, isn't it, Mr. Brown?

MR. BROWN: Not quite, respectfully, because Sony does not present an anti-trust problem. By Sony owning Columbia, you don't have the same situation as you have with the networks.

MS. WOODRUFF: Because they're not already in the business.

MR. BROWN: They're not already in the business. The share of the market is not that significant.

MS. WOODRUFF: Mr. Londoner, back to you. What do we look for now in the entertainment industry? Do you look ahead and see more of these sort of consolidations and acquisitions, continued ferment in the industry?

MR. LONDONER: I don't know if I'd go so far as to call it ferment, but I think there probably will be more consolidations. There are two economic reasons for consolidation within the entertainment business. One is what we talked about a few minutes ago, the ability to package software with hardware and make the money essentially on the hardware by combining the two. The other is really within the entertainment business itself. The entertainment is what's called a sunk cost business, s-u-n-k, which means that you make the entire outlay for the costs of the product up front, and the revenues that you get don't carry any meaningful incremental costs. It's not like when you make an automobile.

MS. WOODRUFF: So you make a movie picture or a television episode and it's shown over and over again, you get the return on that?

MR. LONDONER: The more markets that you can sell it at and the more that you can get out of those markets, the more profits you make, so that the consolidation within the entertainment business to an extent is reaching out to control the end markets to maximize revenues and profits.

MS. WOODRUFF: So what does that say about --

MR. LONDONER: There's probably more consolidation.

MS. WOODRUFF: More --

MR. LONDONER: Time-Warner being the classic example.

MS. WOODRUFF: And that Sony probably made a good decision, there's not much disputing that?

MR. LONDONER: Well, we'll see.

MS. WOODRUFF: Okay. Well, gentlemen, we thank you both for being with us. David Londoner, David Brown, for being with us here in New York, and Susan Tolchin with us in Washington, thanks to all three of you. FOCUS - BOND BUCCANEERS

MR. LEHRER: Next two stories about the international money crunch. First, a new angle on an old problem, the third world debt. Finance ministers and international bankers from throughout the world are in Washington this week for the annual meeting of the International Monetary Fund. Pres. Bush today encouraged them to support his administration's plan for debt relief, but our Special Business Correspondent Paul Solman says it's not just up to the diplomats and the bankers. Wall Street has a part to play as well.

MR. SOLMAN: These are traders who buy and sell debts, the debts of lesser developed countries, LDCs, like Argentina, the Philippines, and Brazil. This is the LDC trading desk at Salomon Brothers, one of the most prestigious financial firms on Wall Street. Eighty years ago, the Salomon Brothers began making a living buying and selling bonds, corporate bonds, U.S. bonds, the bonds of other nations. And what's a bond? Nothing more than the piece of a paper a borrower gives you when he or she borrows your money, in short, the borrower's I.O.U. When you buy a bond, you're actually loaning money. The money is simply your marker for the debt. When you lend the money to Uncle Sam, his marker is a U.S. Government or savings bond. It's 6:50 AM in New York and no one's on the main trading floor at Salomon yet, because the main business here is trading U.S. debt, but since it's already 8:50 AM in Brazil and Argentina, off in the corner at the LDC desk, they're in business. These are the buccaneers of bond trading. The man in charge is Stephen Dizard. At the moment, he has authorized the desk to buy $50 million worth of LDC debt.

STEPHEN DIZARD, Salomon Brothers: We own most of the major names in Latin America, Mexico, Argentina, Brazil. Argentina has been the most active most recently. We also own Peru, which has been very active most recently.

MR. SOLMAN: So you actually own Peruvian and Argentinean debt?

MR. DIZARD: Right. Those are the hot names in the market right now.

MR. SOLMAN: For the past 200 years, the countries Dizard deals in have been borrowing money and issuing IOUs, like this Mexican bond of 1910, a Chinese bond of 1911, an Argentine bond of 1907, or a Polish bond of 1920. The idea is you hold onto these, clip and send in the coupons on the back to get your interest payments. When the bond comes due, you turn it in and get back the principal. But if you need your money sooner, you can sell your bond in the market through a broker like Salomon. Unfortunately, and here's the key to Steve Dizard's business, if a country stops paying its debts, you can only sell the bond for a fraction of its face value.

MR. SOLMAN: What's Peruvian debt selling at?

MR. DIZARD: About a nickel.

MR. SOLMAN: A nickel on the dollar?

MR. DIZARD: That's right.

MR. SOLMAN: And you own this stuff?

MR. DIZARD: Right. The reason we own it is the Peruvians are starting to repurchase it and the pace should increase, particularly because there's an election in Peru in April, the conservative candidate is ahead by about 2 to 1 in the polls, and it's expected they will privatize their oil company and so forth. There's actually a fair amount of optimism.

MR. SOLMAN: There's a fair amount of optimism about Peru on Dizard's desk as well. His traders bought Peruvian debt at 4 cents on the dollar earlier this week and have already sold some at 5 1/2, making almost 40 percent in a couple of days. The buyers? The buyers are rich Peruvians for the most part, betting that the government will eventually pay back the debt at say 15 cents on the dollar. Traders here keep searching for similar good buys on bad debt. This market has grown from a billion a year just five years ago to an estimated $75 billion for 1989. Economist Patrick Clawson says the marketplace has become all important in determining the price of LDC debt.

PATRICK CLAWSON, Economist: In the real world of the marketplace, the prices are being set every day, the discounts are being traded every day, whereas, in the official world the pretense is there that eventually the country will repay every penny that it can.

MR. SOLMAN: Pretense has characterized the official world throughout the decade long debt crisis. Back in 1983 at 23 Wall Street, home of J.P. Morgan's legendary bank, Chairman Lewis Preston challenged my assertion that the LDCs would default.

LEWIS PRESTON, Chairman, Morgan Guaranty: Well, that assessment of course is yours, not mine. I think these loans will ultimately be paid back.

MR. SOLMAN: Preston is still chairman, but no longer so optimistic. Last week, Morgan announced that it will have sold $1/2 billion worth of debt in the LDC market by the end of the month. And who's been selling all along in this market, if not the banks? Publicly, they've been demanding payment in full for years. Privately, during those same years, they've been unloading the debt at cents on the dollar. Throughout this period, the media have focused on the Baker plan, the Brady plan, endless negotiations here at the International Monetary Fund, the IMF, all essentially political solutions to the debt crisis, but at this year's IMF meetings, Managing Director Michel Camdessus is finally acknowledging the new market reality.

MICHEL CAMDESSUS, International Monetary Fund: Of course, this market is thin, it's volatile, but it exists, and every day a growing amount of transaction takes place there. This means that this market is seen as respectable by people buying and people selling. Possibly it's not perfect, but it's an indication and it has to be taken as such.

MR. SOLMAN: In fact, under Camdessus, the IMF is actually lending money to debtor nations to buy back their IOUs at a steep discount on the open market. In a sense, you can't trust anyone in this business. Back in the 19th century, when the U.S. was a lesser developed country, we even stiffed our creditors.

PATRICK CLAWSON, Economist: In the 1830s, we were talking about states borrowing rather than the U.S. Government, and there were nine states which stopped paying their interest on their debt, and two states, Mississippi and Florida, which stopped paying their debt altogether. Michigan repudiated part of its debt. To this day, Mississippi has never repaid the money that it borrowed in the 1830s.

MR. SOLMAN: The biggest defaulter of all time, however, was not one of the states of the union but the Union of Soviet Socialist Republics, formed when the czar was overthrown when Lenin took over. Now this is a Russian bond that I bought for $15 a few years ago. It was issued in 1912 and it says obligatsia here in Russian and was signed by these czars, Mann and Moscow, down at the bottom. Now on the other side you see the coupons have been clipped. These are coupons you send in twice a year for your interest payments, and they've been clipped all the way up through the 13th coupon which is stapled to the bond, and this is a 1918 staple. We know that because this coupon is dated the 1st of September 1918. That's after the Communist Party took over Russia and decided it wasn't going to honor the obligatsia of the czar anymore.

MR. CLAWSON: It's possible that someday the Soviet Government will pay this off, not 100 cents on the dollar and they won't pay the accumulated interest, but they might pay it off. The Soviet Government is interested in going back in the bond market and they have, in fact, repaid some of these bonds in Britain, long discussions about this in Germany and in Switzerland, and they might well repay this bond. It might be worth something. Hang on to it.

MR. SOLMAN: How much would you give me for it?

MR. CLAWSON: Well, I'd pay you at least 10 cents on the dollar, without checking with my broker. If I checked with my broker, it might be worth a lot more than that.

MR. SOLMAN: Well, I checked with a broker and this is worth about 12 cents on the dollar, not 10, but that's still 20 percent less than I paid for it and a demoralizing illustration of the fact that on average over the years, foreign debt has been a very dubious investment. And that's why bond holders and banks have played a game of chicken with the borrowing countries. Say the banks, pay us back or we'll never lend to you again. Say the countries, give us more time, more money, and a break on what we owe. Occasionally, as happened last week, some banks say, forget it, we're simply writing you off, but eventually a country pays something and then a new generation of lender with a short memory starts the process anew. At Salomon, Economist John Purcell calculates the odds of repayment country by country. Occasionally he finds an attractive long shot like Peru.

JOHN PURCELL, Salomon Brothers: Yeah, I think Peru is one of the great bargains around as a matter of fact. Peru is trading in the 4 to 5 cent range. Most probably it should be trading in the 15 cent range. For the countries that are priced at 5 cents, Peru is probably one of the wealthiest in terms of its export capacity, in terms of its population, the training of its population, and even in terms of the size of its debt.

MR. SOLMAN: Some other prices, Brazil, 30 cents on the dollar, Mexico about 43, the Philippines up around 50, and finally just below the Philippines, Poland at 37 1/2. With its finance minister now urgently appealing for economic aid, we thought we'd end by asking how Salomon makes the odds on Poland.

MR. PURCELL: I am not highly optimistic about the economic situation in Poland right now.

MR. SOLMAN: Well, according to this, that means Poland is worth exactly the same thing that Brazil is worth.

MR. PURCELL: Well, it's probably not too far off. The two countries have very different kinds of problems, but if we were going to look at the degree of risk that we're talking about, it's probably rather similar.

MR. SOLMAN: Finally, as we show you the last bond you'll ever have to look at, we put the question of Polish debt to Patrick Clawson.

MR. CLAWSON: Do you want the Polish government borrowing more money? I think the record of the Polish government in borrowing money is terrible. I don't want them to borrow more money. So personally, I don't want to see them get back in the fray. Now the question arises as to whether or not we should put the past behind us and allow the Poles to start afresh. Look, that's basically, if I may so, a political question of what price we're prepared to pay in order to give Poland this ability to start afresh.

MR. SOLMAN: And so it's no wonder that economies like Poland facing hostile banks and an uncongenial marketplace are placing more and more of their hopes on political institutions like the International Monetary Fund. NEWS MAKER

MR. LEHRER: And now to more on the specific money problems of Poland. Pres. Bush spoke of them in his speech to the IMF bankers today in Washington. So did Poland's new non-Communist Finance Minister, Leszek Balcerowicz, the holder of an MBA degree from St. Johns University in New York City. He said his country needed $1/2 billion to cover immediately urgent purchases. Charles Krause talked to him about the situation yesterday and here is Charles' report.

MR. KRAUSE: Pres. Bush made his appeal for more Western economic aide for Poland during a speech in Washington today to directors of the World Bank and the International Monetary Fund.

PRES. BUSH: In the light of clearly growing needs in the recent accession of a Solidarity led government and our self-evident stake in its success, we must do more.

MR. KRAUSE: And responding to critics who've accused the administration of missing an historic opportunity, Mr. Bush indicated he may now support more direct aid to Poland from the United States.

PRES. BUSH: For its part, the United States intends to be out in front of this effort, to take advantage of this historic development and to ensure its success.

MR. KRAUSE: The President's statement came at a crucial moment. After 40 years of Communist rule, Poland's new government is in place, but it's inherited an economy that's on the brink of collapse. In Warsaw and elsewhere throughout the country, there are chronic shortages of food and other consumer goods. There's corruption and black market profiteering. Meanwhile, huge but obsolete factories are destroying Poland's air and water, but the steel and ships the factories produce have no markets, and without costly modernization, the factories have no future. Because the government prints paper money to raise wages and pay for things it can't afford, inflation in Poland is now running well above 300 percent. Each month workers at plants like Nowa Huta, the country's largest steel mill, receive more money, but their real wages and living standards continue to plummet. The workers especially blame the Communist Party and the Communist trade unions for Poland's worsening economic crisis. They were also largely responsible for Solidarity's overwhelming victory in parliamentary elections last June. Defeated and with nowhere else to turn, Communist Party Leader, Gen. Woziech Jaruzelski, now Poland's president, agreed to a cabinet dominated by Solidarity. Sworn into office last month, Prime Minister Mazowiecki heads the first non-Communist government in Eastern Europe since the cold war began. While many observers view events in Poland as a victory for the West, new government in Warsaw is faced with an almost overwhelming task. It hopes to restructure the Polish economy, that is, to replace Communist with free market capitalism. At the same time, to reduce inflation, it will be forced to impose austerity measures which could lead to unemployment and could prove to be politically explosive. In Washington this week for the IMF and World Bank meetings, Poland's new Finance Minister, Leszek Balcerowicz, was trying to convince the United States and its allies to do more.

MR. KRAUSE: Mr. Minister, thank you for joining us. While in Washington this week, you've met with top American officials, you've met with the heads of the IMF and the World Bank. Would you tell us what you've been telling them about your plans to reform the economy.

LESZEK BALCEROWICZ, Finance Minister, Poland: I presented to them a brief initial statement about our economic reform program which contains on the one hand the actions the Polish government wants to take with respect to the economy and here are two main problems, first federalization, containing and combatting inflation, and second, initiating the structural institutional reforms in our economy. And I also presented to them what we see as required for an assistance combined with the proposed action of the Polish government.

MR. KRAUSE: When you talk about structural reforms, what are you talking about?

MR. BALCEROWICZ: Among other things, first of all changes in the ownership program, the structure, like privatization of the state enterprises, also creating favorable conditions for the development of the new private firms, demonopolizing the state sector, we've got huge monopolies now so we must bring them down, fundamental tax reform so that there are the right incentives to the entrepreneurs. We also want to introduce a comprehensive personal income tax back in the Western countries and so on, so there's a number of points, fundamental points in this institutional reform program.

MR. KRAUSE: And how far are you prepared to go, for example, I was in Poland not long ago, I was at Nowa Huta, which is a large steel mill, are you prepared to privatize those huge industries that have been part of the Communist state in Poland?

MR. BALCEROWICZ: Our privatization program would also include major industries. Of course, we cannot do it overnight, this has to be done in a couple of years and in a sensible way so that we can get the prices right, we want to sell so that this could be combined with an anti-inflationary program.

MR. KRAUSE: What do you need from the West in order to succeed?

MR. BALCEROWICZ: Now in the short run you would need some assistance which would alleviate our problems in the balance of payments, so that we can keep imports at a necessary level. Now our foreign reserves are at a very low level and we cannot finance the necessary imports, so access to our Western credit so we can keep our production is essential and we also welcome the offers of food aid.

MR. KRAUSE: But how much money are you talking about. Lech Walesa this summer was talking about $10 billion from the West over the next three or four years. Is that figure still an operative figure for your government?

MR. BALCEROWICZ: Lech Walesa was talking about a long range program. Now I am talking about short run, which is the rest of this year, and I think what is essential to us in the short run is first of all food aid which hopefully would take the form, at least partially, of this -- culture -- so that we can set in motion at least the potential --

MR. KRAUSE: Tractors, fertilizer, that kind of thing?

MR. BALCEROWICZ: Soybeans, fodder and so on. And secondly, we need another dimension. We must maintain the supplies and production at certain levels so that we avoid major disruption in our economy and the second point is access to some credits. I estimate it will be at the range of 400 or 500 million dollars this year, guaranteed credits.

MR. KRAUSE: As you know, there's a debate in the United States between the Congress and the administration about the amount of aid that would be appropriate for Poland. Is the approximately $200 million which the administration is talking about, is that enough to help you through this period?

MR. BALCEROWICZ: This is only one of the items. This is supposed to be, this is called enterprise funds. Now I would like this fund to be risen to such a level that the end to be, to take the form, such a form that we can finance the necessary imports, and I already mentioned the figure which I think it's necessary to ask.

MR. KRAUSE: Which would be about double or triple what the administration is offering?

MR. BALCEROWICZ: Yes, I think so.

MR. KRAUSE: To what extent do you think you can expect the Polish people to support a program that calls for even greater austerity after years of shortages, as you've said, and the falling standards of living?

MR. BALCEROWICZ: I think this government, the government which I represent, certainly enjoys much greater support and people do not expect a miracle overnight, but at the same time, we are fully aware that they have been waiting for 10 years, having a standard of living lower than that 10 years ago, so people's patience is limited. So we have to move ahead quite fast. In this process we examine needs of Western assistance so that we can initiate the changes and also prepare the stabilization program.

MR. KRAUSE: Is your government worried that it could end up alienating the works and the others who put Solidarity in power? Could that happen?

MR. BALCEROWICZ: One could not exclude this possibility of course.

MR. KRAUSE: Robert MacNeil recently interviewed Gen. Jaruzelski, and the general said that he is now committed to multi-party government in Poland. Given the fact that you've been working with him now for a few weeks anyway, do you think that there has been this kind of radical change in the thinking of Gen. Jaruzelski?

MR. BALCEROWICZ: I think Gen. Jaruzelski's loyal of Mr. Gorbachev and there's a strong combination between what is going on in Poland and what is going on in the Soviet Union, so from this point I would expect Gen. Jaruzelski to continue to support the changes which are going on in Poland, and I think he played a major role in what happened in Poland up till now. It seems to me that his position is such that he will continue to play such a role.

MR. KRAUSE: Never before has anyone tried to transform a Communist centrally planned economy into a market economy, which is I gather what you're hoping to do. How did you even begin, how do you know even where to start with this?

MR. BALCEROWICZ: One should distinguish between two things, first, institutional changes, and here I can't, I don't see major conceptual problems like changing the ownership structure, changing the banking system and so on. Here we can follow the Western examples. The real problem is how to tackle inflation because once inflation has achieved a very high level, there is no way of doing away with inflation in a manner that is not harmful or not unpleasant to the population. This is our dilemma.

MR. KRAUSE: Very quickly, do you have any doubt that you can succeed?

MR. BALCEROWICZ: There's always some scope for doubt, but let me stress that I see a reasonable chance for success, otherwise, I would not have accepted this difficult job.

MR. KRAUSE: I think we'll have to leave it there. Thank you.

MR. BALCEROWICZ: Thank you. RECAP

MS. WOODRUFF: Once again, Wednesday's main stories, Pres. Bush said there's a good likelihood that a strategic arms treaty can be signed by next year's super power summit. Mr. Bush and the nation's governors opened a two day summit on education in Charlottesville, Virginia, and the Sony Corporation of Japan said it agreed to buy Columbia Pictures for nearly $3 1/2 billion in cash. Good night, Jim.

MR. LEHRER: Good night, Judy. We'll see you tomorrow night. I'm Jim Lehrer. Thank you and good night.