Letters: Jan. 31, 1983

Debts Due

To the Editors:

The debt bomb [Jan. 10] proves once again that every loan, even between nations, is a gift until it is repaid.

Norris E. Chapman

Denver

The world has now discovered the dangers inherent in the Federal Reserve Board's pursuit of tight-money policies. It is tragic to see 12 million Americans unemployed, thousands of U.S. companies in bankruptcy and hordes of Third World countries on the brink of default. No wonder John Maynard Keynes warned us to avoid high interest rates.

Suzanne M. Taylor

Bothell, Wash.

So the Federal Reserve is the "lender of last resort" and will "create the liquidity to save the system." What that means is that Americans, through taxation and inflation, will have to pay to save a group of greedy bankers and irresponsible governments, including our own.

Jack Van Zandt

Tehachapi, Calif.

As a former deputy comptroller of the currency for special surveillance, I know that all national banks, large and small, were regularly informed of their excessive and risky loans to foreign countries. These loans were not made solely on the recommendation of young lending officers; they were approved by the banks' directors. The comptroller's attempts to reduce or eliminate these loans were thwarted by a Federal Reserve Board that contended that loans to foreign countries should not be criticized, and by bank executives who argued that such countries could not go bankrupt or fail to exist. In view of the current situation, the Fed and the bankers should remember that they were told that even in lower Manhattan the chickens would come home to roost.

Robert A. Mullin Rockport, Texas

Your story is a fine analysis of the lending practices of Western bankers. I agree with your statement that the responsibility for this mess lies with the "gunslinging" young bank officers who get ahead by handing out money to foreign borrowers with little concern about repayment. The banks are at fault for this situation. They fail to train their personnel properly.

Joseph W. Welsh

Vero Beach, Fla.

Some readers may have been surprised at the magnitude of the figures used for the countries in your debt watch list chart. Consequently, some explanation of the numbers might be useful. The dollars of total debt at the end of 1982 are gross external debt, including short-term debt but excluding assets abroad. Sometimes short-term debt is not taken into account by analysts, but recent experience has shown that such credit is at least as troublesome in refinancing situations as longer-term credit. Similarly, foreign assets may not always be immediately available.

In measuring the debt service payments for 1983, we go beyond the conventional method, which includes interest payments and amortization of principal for medium-and long-term debts. Morgan Guaranty also counts short-term debt, because a country that faces a liquidity problem should not assume that short-term credits will routinely be renewed.