Easier Credit Possible Soon for Some Debtor Nations

By | May 10, 2014

The House panel, headed by Rep. Dante B. Fascell, D-Fla., has no plans to draft any foreign lending legistation. It held hearings on the matter mainly to improve its understanding of the world’s financial condition.

The Fed chairman furnished the committee with figures showing that developing countries that are not oil producers owed U.S. banks $107.1 billion at the end of March. The foreign loan exposure of only the nine largest U.S. banks totaled $66.6 billion, according to the Fed.

Mr. Volcker condemned the use of any uniform formula to remedy the problems of all indebted nations. He stressed the importance of private lenders treating each country on a case-by-case basis.

For instance, he recommended that commercial banks stretch out loans to nations that have proved themselves creditworthy.

But the Fed chairman warned against such loan restructuring for countries without records of creditwothiness. “Banks will keep such countries on a short leash,” he said.

Mr. Volcker also endorsed the concept of banks agreeing to cap, or limit, the rate they charge on foreign loans. But he indicated that such an arrangement should not be government-imposed but included in agreements reached between borrowers and lenders. Such interest rate caps are ofter used effectively in the domestic mortgage market, Mr. Volcker noted.

Of the several moves Mr. Volcker prescribed for treating Latin America’s severe indebtedness, he cited a substantial cut in the U.S. budget deficit as the “single most important” step Congress could take to ease international financial strains.

As usual, Mr. Volcker would offer no predictions about the direction of interest rates or the money supply. But he assured the lawmakers that they could “bring down interest rates” by approving a one-time cut in the budget deficit totaling about $50 billion.

On monetary policy, Mr. Volcker’s remarks seemed to indicate that Fed policy-makers at the moment see no need to make sharp adjustments in the rate of U.S. money supply growth.

In this customary middle-of-the-road style, he said, “the main money supply measures are comportably within the ranges that we established at the beginning of the year.” The central banker said the Fed was in the position to “increase the money supply in an amount that we think is consistent both with continuing growth and progress against inflation.”