Newspaper article THE JOURNAL RECORD

Doomsayers Fear Increasing Crisis from International Debt

Newspaper article THE JOURNAL RECORD

Doomsayers Fear Increasing Crisis from International Debt

Article excerpt

NEW YORK - The jeremiads of financiers and economists, like those of other prophets or physicians, are usually intended to alarm miscreants enough to bring about actions that will avert the evil.

The latest such doomsayer is Felix G. Rohatyn, chairman of the Municipal Assistance Corp. for New York and a senior partner of Lazard Freres & Co., the investment banking firm.

Writing in the current issue of The New York Review, Rohatyn charges that the United States ``has been guilty of the most irresponsible fiscal behavior in its history during the last seven years.''

He asserts that ``American fiscal folly, coupled with the inability to coordinate economic policies with Europe and Japan, has created an ever-increasing worldwide pyramid of debt that cannot withstand a major recession.''

It was heightened perception of the dangers facing the world economy, a high Citicorp official said last week, that brought on the bank's decision to increase its loan-loss reserves by $3 billion and take a second-quarter loss of $2.5 billion, the second largest in history for any corporation.

Citicorp's anxiety-driven move is inducing responsive actions by others. The Chase Manhattan Corp. this week increased its loan-loss reserve by $1.6 billion, taking a second-quarter ``hit'' of $1.4 billion.

The Norwest Corp., a major regional bank in Minneapolis, said it would raise its loss reserves by $200 million. Most other big banks are likely to follow suit. One exception may be the BankAmerica Corp., which says its reserves are adequate since it was scared earlier by potential losses on domestic as well as foreign loans.

Are the politicians, custodians of other people's money, likely to be as worried as the bankers?

It is possible that the decisions by Citicorp and Chase to raise reserves to cover their shaky Latin American and other third world loans may cause the leaders of the seven major industrial countries, meeting in Venice June 8-10, to make the international debt crisis the center of their deliberations and actions. But it does not seem likely to veterans of past economic summit meetings.

One such veteran, Otto Lambsdorff, the former West German economics minister, said in an interview in New York this week that he thought the seven were all too weak politically or too incompetent economically to tackle the important economic issues.

``How much time do they have anyway to deal with the tough economic questions?'' he asked. He thought they were likely to spend considerable time on such issues as the Persian Gulf, terrorism, AIDS and drugs. …

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