The MacNeil/Lehrer Report; Funding the IMF

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ROBERT MacNEIL [voice-over]: Should American taxpayers bailout the big banks to cover their bad foreign loans? That slogan might defeat a move President Reagan and congressional leaders consider vital -- refunding the IMF.

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MacNEIL: Good evening. President Reagan probably considered it an easy matter to get Congress to up the funding for the International Monetary Fund to help Third World countries pay back their enormous debts. He backed it; so did leaders of both parties; so did the Federal Reserve Chairman Paul Volcker and the banking and foreign policy establishments. The Senate passed it without much fuss, but in the House the measure has become snarled by an unusual banding together of activists on the political right and left. Mass mailings stimulated thousands of letters to congressmen claiming the bill was a bailout for big banks, which have made bad foreign loans. Backers of the bill deny that and say failure to give the IMF the projected $8.4 billion could start a chain reaction that might trigger collapse of the world's financial system. Today, faced with defeat, sponsors withdrew their bill and came up with a substitute to meet some of the criticism and still help the IMF. Whether that will work is still uncertain. Tonight, why so many people don't want to refund the IMF and what happens if we don't. Jim Lehrer is off; Charlayne Hunter-Gault is in Washington. Charlayne?

CHARLAYNE HUNTER-GAULT: Robin, the International Monetary Fund is the lender of last resort to countries having trouble paying their foreign debts. Foremost among its customers are countries like Brazil, Mexico, Venezuela, Argentina and Poland. The 146-member fund based in Washington was created in 1944 after the Bretton Woods Monetary Conference that established the post-war trading and financial system. The Fund's mission had been to ensure a more stable world trading system. Last February it's governing board agreed to raise the IMF's total capital from $67 billion to $99 billion to help nations recover from the crippling worldwide economic recession. At present, the U.S. contribution is about $13 billion, making it the single largest contributor. Obviously, some think that's enough, and obviously others disagree. Robin?

MacNEIL: The nation's largest bank, with heavy loan commitments abroad, is the Bank of America based in San Francisco. Its vice president for international economics is Robert Heller, who joins us tonight from public station KQED, San Francisco. Mr. Heller, why is it important to increase the IMF funding?

ROBERT HELLER: The IMF is almost ready to run out of funds. It has already made commitments which are in excess of the liquid funds which it has now available, and therefore it is important to make the resources available to enable the IMF to continue its international lending.

MacNEIL: Why is it important that it have the funds to do that?

Mr. HELLER: Without any additional IMF lending, the world economy would be severely hampered in its current expansionary phase. The funds to finance the additional international trade, the funds to generate the jobs, both in this country and abroad, would simply not be there.

MacNEIL: What happens if Congress says no to this measure?

Mr. HELLER: I think the IMF would have to go back to the drawing boards. First of all, there is the question whether other countries would also deny this funding for the International Monetary Fund. So the United States, by denying the funds, by denying the quota increase, would be reducing its own share in that international organization, thereby reducing its international political influence globally. Furthermore, the funds could be raised from private sources, in which case the IMF would be able to continue with some of that lending.

MacNEIL: Do you agree with some of the people who back this legislation, saying that if it doesn't happen it could, as I said a moment ago, start a chain reaction which might even result in a collapse of the world financial system.Is that right?

Mr. HELLER: I think it's really overdrawing the issue. You're not talking about a collapse of the international monetary system. The funds would be used to make the functioning of the existing system a little bit more smoothly. But I don't think we are faced with a position of collapse.

MacNEIL: I mean, could it result in one of the debtor countries not being able to meet their loans and thereby defaulting, thereby starting that kind of chain reaction?

Mr. HELLER: I think you've got to look at the individual country itself in the first place. The economic policy measures implemented by these various countries are now beginning to take effect and beginning to show results, and the IMF funds are designed to finance that bridging period which is needed until the countries are really able to stand on their own feet again. So the -- if the IMF wouldnot come through with the additional funding, you would have a situation where some of these countries may find it difficult to meet their current payments. That's true.

MacNEIL: What do you say to those people in the campaign against this bill, who argue that this is just a bailout for big banks like yours which made imprudent loans?

Mr. HELLER: Well, it's clearly not a bailout because none of the funds involved are designed to be used for repayment of bank loans. Instead, the banks are obligated to contribute further funds as part of the IMF standby arrangements.

MacNEIL: In other words, banks like yours would have to increase their loans?

Mr. HELLER: That's right. For the major industrial -- for the major countries that are involved, countries like Brazil, Mexico, the IMF at the present time demands that commercial banks increase their lending by approximately 7% per year to these countries. So no bailout of commercial banks is involved. Instead, what these funds are really used for are to finance additional trade between the United States, other industrialized countries and the developing world so that our own jobs, our own agricultural exports here can continue, and we don't have to shut down the U.S. economy.

MacNEIL: Well, thank you.Charlayne?

HUNTER-GAULT: The IMF bill has been stalled in the House partly because of the vigorous lobbying efforts by conservative groups. More than 200,000 anti-IMF postcards have descended on Capitol Hill since June. Here to tell us about that opposition is the chairman of the National Taxpayers Union, Jim Davidson. Mr. Davidson, why are you so opposed to this IMF funding increase?

JAMES DAVIDSON: Well, I think there are a great many reasons to be opposed to this.One, there's just the aesthetic reason that it seems to me inappropriate to people who don't even have overdraft protection on their checking account should be bailing out banks that have imprudently lent billions upon tens of billions to bankrupt countries around the world.

HUNTER-GAULT: You mean American bank depositors.

Mr. DAVIDSON: American citizens, right. I think, secondly, we've got a problem that was glossed over by Mr. Heller, which is that lending additional amounts of money and helping to precipitate even further lending abroad is going to have the exact opposite effect of what most sane citizens would hope for, which is that it increases the instability of the world system. A long time ago, Lord Keynes, who was a great economist, and not nearly the dope that some of his supporters would make him out to be, had a very profound analysis of the instability which is created by ever greater amounts of foreign debt. And he predicted in 1919, at the time when the great amounts of money were being -- were owed after World War I, that these debts were going to be repudiated and that lending additional money was ridiculous. I think the same thing is true today, that what we're doing is encouraging the export of capital from the United States -- money that could be used to invest in jobs and businesses and production in this country -- to ship it to Mexico to build steel mills in the jungle or to Brazil to finance budget deficits of those countries and increase the American budget deficit, by the way, rather than keeping this money in the United States to be invested prudently, we would hope, in increasing productive output of this country.We're raising interest rates by lending money abroad for purposes which in many cases make no sense at all.

HUNTER-GAULT: You heard what Mr. Heller said would be the impact of not having this increase in funds. You don't buy that argument, that it'll cost jobs and the fact that the money is there increases American import --

Mr. DAVIDSON: No. Look we -- $600 billion are owed by the underdeveloped countries. This is a reflection of a great instability in the world system, a failure on the part of those countries to adapt and to adopt their economies to the changing conditions in the world. We're just putting -- to use an old phrase -- good money after bad. There is very little prospect that that money will be repaid, and we're lending them the additional money to pay back their previous loans. And it -- we're kiting the world debt; that's what we're doing. We're giving Brazil, say, $8 or $9 billion so they can pay their overdue debts from last year.

HUNTER-GAULT: Where do you stand on the issue of this being a bailout for the banks?

Mr. DAVIDSON: Well, it definitely is a bailout, but it's a bailout with a very small pot. It's a very inefficient bailout, and it's true, as Mr. Heller has suggested, $8.6 billion from the United States or even $30 billion is too small a pail to bail out a $600-billion situation. So what's going to happen is that this will be the downpayment on yet greater amounts of money that will be poured out from taxpayers in this country and other Western countries to keep this international debt pyramid going.

HUNTER-GAULT: Well, what do you think will happen if the increase doesn't go through?

Mr. DAVIDSON: I think what will happen is that the -- IMF has, by the way, $50 billion worth of gold and additional assets that it's sitting on that it could easily dispose of in the marketplace. If it really thinks that it's a crucial matter to lend more billions to these countries, it could very easily sell some of its gold that it has rather than reaching into your pocket and the pockets of people listening to this broadcast in order to get subsidized rates to continue this procedure of kiting world debt, which I think is very unwise, and it leads to instability. It doesn't prevent instability.

HUNTER-GAULT: All right. Opposition to the IMF refunding has produced some strange bedfellows. Joining the chorus of anti's on the right are the Washington-based policy arm of the United Methodist Church, the Environmental Policy Center and Ralph Nader's Public Interest Research Group. Mr. Nader is also with us tonight. Mr. Nader, how did you end up on the side of the conservatives on this one?

RALPH NADER: Well, one might say, how did I end up on the side of justice and fairness to the American taxpayer and Third World peoples? Like so many things Ronald Reagan proposes, this measure to beef up the IMF is unfair to just about everybody but the big banks, who are going to be made even richer from their high-interest loans to Third World countries. What's happened is that the banks poured a lot of money into these loans to Brazil and Mexico and other countries at terrific interest rates. They have been making terrific profit -- twice as much or more on their loans abroad as they have on their loans to people in this country. And the Third World countries are now in difficulty in being able to pay these loans. So along comes Ronald Reagan and he says to the Congress, "Give us another $8.4 billion to beef up the International Monetary Fund," which is kind of like a loan collector now for the big banks, "and this money will be an electronic boomerang. It's not going to go to develop the economies of the Third World; it's going to go from Washington, zingo, to Rio, Mexico City, back to pay the high interest on the loans to the New York, California and Chicago banks.

HUNTER-GAULT: Well, what would happen to those countries if the IMF didn't get the increase in the funds? I mean, don't they need the money?

Mr. NADER: Something very predictable. If the big New York banks do not have Uncle Sugar or Uncle Sam as the crutch, they will sit down with the Mexican government and the Brazilian government and others and restructure the loans. In other words, they will lower the interest rates from super-high to just high; they will stretch out the loan payments; they will reduce some of their exorbitant rescheduling fees; and they perhaps will start putting aside a little reserve for their potential bad debts. Now, that's exactly what banks do in this country when they've loaned money to corporations and the corporations that are in trouble, can't quite pay it off. They renegotiate it. And that's exactly what should happen, and if the U.S. government helps to bail out these banks, what will happen is that the banks will charge higher interest; the Third World countries will go deeper in debt; they will be less able to pay back the money because the IMF, as a condition of its credits, requires severe austerity measures that turned the screws on workers and poor people in Third World countries, like cutting real wages, cutting food subsidies, increasing taxes, and resulting in reduced imports, which mean less jobs for American exporters.

HUNTER-GAULT: Is your opposition, then, in addition to, in your words, not wanting to see this, well, sop, in effect, to the banks? Do you also have some concerns about -- I mean, do you think the IMF can deal with the situation as it is with its present funding?

Mr. NADER: It shouldn't have to. You see, that's the point. If the IMF doesn't give this subsidy, in effect, this help to the New York banks and the other banks, the New York banks will face reality, such as it's faced all the time throughout world history between debtors and creditors. They'll sit down and they'll lighten the terms of the loan. And instead of making super profits, the banks will just make moderate profits. So my objection to the IMF proposal of Ronald Reagan is that not only is it unjust to the American taxpaper and worker and Third World countries and peoples, but it's not going to work. It's just going to make the international debt crisis deeper and deeper and put off the day of reckoning.

HUNTER-GAULT: All right, thank you. Robin?

MacNEIL: Now the view of a man who was the chief regulator of the country's federally chartered, or national bank. He is John Heimann, comptroller of the currency from 1977 to '81, now deputy chairman of the Wall Street investment firm of A.G. Becker Paribas. Mr. Heimann, Mr. Davidson says this is just sending good money after bad, that these countries are unlikely -- highly unlikely to pay off these debts. What's your view of that?

JOHN HEIMANN: Well, I obviously don't agree with that. I think that what we are doing is trying to continue the progress which has been made in many of the developing countries towards creating productive economies for themselves and in the international markets. After all, precious little has been made of the fact that exports are important to the United States, that some 20% of all our goods that we produce go for export. It equates to five million jobs. And I think part of the history of the post-World War II history, the greatness of our country has been building the rest of the free world. I'm somewhatshocked at the idea that both the right -- far right and the far left have decided to turn back the clock for the last 30 years.

MacNEIL: Mr. Nader says that far from helping to build the economies of these countries, the IMF system imposes severe austerity measures on them in order to qualify for the loans, which make it very hard for them to develop or recover economically.

Mr. HEIMANN: Well, if you compare Mr. Davidson and Mr. Nader's remarks, Mr. Davidson was saying that not enough discipline had been imposed. The IMF is now imposing discipline as it can be handled by these developing nations.And Mr. Nader is criticizing the discipline that's being imposed. The truth of course lies somewhere in between.

MacNEIL: Which is what?

Mr. HEIMANN: That is that there has been over-borrowing by some of these nations, clearly, that there must be more discipline in terms of their economic and financial affairs. But only to that degree that will not cause substantive social or political unrest in those nations.

MacNEIL: Mr. Heller said to us at the beginning -- our banker from San Francisco -- that this is not a bailout, that the money won't come to repay debts which are owed to, for instance, American banks. Mr. Nader says the money is -- he called it "boomerang" money, which will go down to Brazil from Washington -- go down to Brazil and come right back to pay the interest on these loans to banks like Mr. Heller's.

Mr. HEIMANN: Well, Mr. Nader's wrong.

MacNEIL: Well, how is he wrong? Even if the money does not itself directly come back, doesn't it enable these countries to service their debts and to pay the interest on their debts when they mightn't be able to without further loans?

Mr. HEIMANN: Well, if you're saying -- if the money is to be used to help them solve their economic and financial problems, so that those nations can return on a growth cycle which will benefit the people of those nations, the answer is yes, of course that's part of the purpose. And in that process, as their economies improve, and they are then more able to honor their past obligations and future obligations -- after all, that's the history of how one's built the capitalistic system throughout the world, and that is, people borrow money to build plants, increase productivity, to produce goods and services that enable the standard of living of all people to increase. So if you're talking about the whole function of the capitalistic system, that's a truism, that's correct. But it's not a boomerang, a slicing out of New York or San Francisco back down to Rio and then right back to San Francisco or New York.

MacNEIL: Let me change the subject slightly. In the leadup to this legislation, the banks strongly opposed restrictions which were proposed in Congress on future foreign lending. Those restrictions have even been increased in this substitute bill which was introduced today to make it more palatable to the critics. Are the banks going to have to accept, in order to get this through, a lot of restrictions which you don't want?

Mr. HEIMANN: Well, I'm not a banker in that sense, but --

MacNEIL: I mean what the community doesn't want.

Mr. HEIMANN: The fact is -- yeah, I suppose that they'll have to accept it and should. I think part of my problem with this debate, Robin, is that we're looking for villains. The fact is that there are a lot of villains around. The banks did some imprudent things. There's no question about that. But it all started with the increase of energy prices with OPEC and then the inability of the industrialized nations, including the United States, to control inflation through a balanced fiscal and monetary policy. We, America, as did the other industrialized nations, through responsibility to the central bank -- they tightened money to control inflation; the debtors had to pay for that, and the debtors --

MacNEIL: Because interest rates went up?

Mr. HEIMANN: Because interest rates went up. So that because our legislative bodies, our Congress and other parliaments, were unable to face the reality of controlling inflation in a balanced way, we decided -- whether we said we decided it or not, we decided -- to break inflation on the backs of the debtors, and notably the LDCs. The banks took the money from OPEC and recycled it and were applauded for that. They made some imprudent loans. And of course the finance ministers of the LDC -- you know, it was pretty difficult for them to turn down the money when they needed it. So there isn't one villain. The banks have blame to share, but so do we. So do the LDCs and so does OPEC.

MacNEIL: Thank you. Charlayne?

HUNTER-GAULT: Mr. Nader and Mr. Davidson, Mr. Heimann says you're just -- you want to turn back the clock, that there's no boomerang here.

Mr. NADER: Well, everything I've read in the banking literature indicates that the money is going to be used to pay the interest on the loans that the New York and other banks have extended to these Third World countries. Paul Volcker privately told a member of Congress a few days ago that he thought that the interest rates that the banks have been charging the Third World countries and the rescheduling fees that they're packing on them were outlandishly high. Martin Feldstein, economic adviser to President Reagan said, in effect, much the same thing.

HUNTER-GAULT: Well, let me just --

Mr. NADER: Now, my point -- my point is if there is going to be this kind of bailout -- indirect, what are the big banks going to give up? Why does everyone else in the world have to give something up, but not the big banks who have been profiting?

HUNTER-GAULT: Let's ask a big banker. Mr. Heller?

Mr. HEIMANN: I'd be glad to answer that.

HUNTER-GAULT: We'll get back to you in a minute, Mr. Heimann. Let's give Mr. Heller a crack.

Mr. HELLER: First of all, the notion that the rescheduling fees and that the interest rates, as Mr. Nader said earlier, are twice as high as they are domestically, are simply not true. The interest rates that are being charged in these international loans, they are pegged to the cost of funds that the large commercial banks are incurring, and it floats directly up and down with the general level of interest rates worldwide.

Mr. DAVIDSON: May I straighten that out? I think that what we're talking about is not the interest rates, but we're talking about the margins. And there's no doubt on God's green earth that the margins that are being charged to Mexico, Brazil and other countries are multiples of what are being charged in the domestic markets. And the reason is very simple to understand, and that is that the OPEC people were not so stupid as to put their money into Mexico or Brazil because they realized quite rightly that they might never be repaid. But they thought, "Fine, we'll give you a portion of this to put it in the Bank of America or the Chase bank and let them ship it down and collect a very high risk premium, but not bear the risk." Because the people listening to this broadcast will be the ones who will pay when Mexico goes broke, as it has done.

HUNTER-GAULT: Mr. Heimann --

Mr. HELLER: I think there is absolutely no evidence whatsoever for the statements which you have just made. Until a very short time ago the banks were being criticized for charging too low a spread to all the developing countries for these international loans. Now you are arguing we were charging too high a spread.

Mr. DAVIDSON: Well, I -- sorry.

Mr. HELLER: The spreads are exactly the same as they are charged for the measurable risks domestically.

Mr. DAVIDSON: Well, they're very, very high risk.But one New York banker was quoted on NPR, which is affiliated in some way with this program, at least remotely --

HUNTER-GAULT: National Public Radio.

Mr. DAVIDSON: He said, "We know that, come the revolution in Mexico or wherever, that we are the ones who will get the highest spreads on our loans. We will get the highest returns. We will get the greatest bonuses, and that's just fine with us because we're not going to pay the bill." That was a quote that was on NPR.

HUNTER-GAULT: All right, we have to move on. Robin?

MacNEIL: Yes, I'd like to go around and ask each of you what is in the broad United States national interest in this? Mr. Heimann?

Mr. HEIMANN: Well, as I think I said before, what we've always struggled to do since the end of World War II was to build a world -- a free world society in which the lives of all people were better, and one does that economically, and improve the standard of living of all people. We've been able to do that over these years, and therefore it's my firm belief that by denying the IMF at this stage of the game that we will have a turndown in the worldwide economy and, as always, the people least able to afford it will suffer. And those will be the people of the LDCs. And, secondarily, the workers in the industrialized economies, including the United States of America, and our farmers. So that, whereas I don't dispute that some banks made mistakes, and I don't know about privileged conversations between bankers and Mr. Volcker and members of Congress, but the mistakes were made. But to penalize poor and innocent people because there has been some stupidity or some lack of prudence, seems to me irrational and immoral.

MacNEIL: What is gained in the national interest, Mr. Nader, by doing that? By denying this funding?

Mr. NADER: A reduction of increased riots in places like Sao Paulo reacting to the draconian anti-people measures of the IMF, which conditions the credits it extends to Third World countries in order to repay New York banks, which conditions these credits with these impositions. I'm surprised that John Heimann is coming out for concern for the Third World peoples, because what is really going to happen if this IMF expansion continues is to impose a depression, to depress the economies of the Third World from the IMF's leverage, just as Professor Slawson, at University of Southern California wrote about recently in The Los Angeles Times. And I think the key way out here is not to put IMF depressive conditions on the peoples of the Third World which create economic stagnation and reduce their ability to pay, but to restructure the loans between the banks and the Third World countries for lower interest rates.

MacNEIL: Mr. Heller, what is in the broad national interest in this issue?

Mr. HELLER: It is to be able to finance again the exports of U.S. agriculture, of U.S. industry, and after all that's what these bank loans are really supporting. The money is not just being -- the dollars are not being sent over there, but they are sent over there because they are supporting U.S. exports. And therefore it is in the vital interest of this country, the workers and everybody else, to get the U.S. economy moving again, and the sooner we can restore stability and health to the economies of the Third World, the better off we will all be.

MacNEIL: Well, we'll have to see in the next few days which of these two sides of the argument prevails in Congress. Mr. Heller, thank you for joining us from San Francisco; Mr. Nader and Mr. Davidson in Washington; Mr. Heimann, in New York. Good night, Charlayne.

HUNTER-GAULT: Good night, Robin.

MacNEIL: That's all for tonight. We will be back tomorrow night. I'm Robert MacNeil. Good night.