\ However, 10 percent of total assets of rather unpalatable measure, ·. such as tant, the World Bank's projects involve . the major U.S. banks are in developing slowing down growth and reducing both it in all sorts of issues and activities in countries, aboutthree times their equity, investment and imports. But their rela- which commercial banks seldom get in- A. W. ·Oausen Discusses and claims on individual countries can .reach one-third to one-half of total bank capital. tive economic flexibility should permit them to do this. Furthermore, since the Mexico debt crisis hit the headlines, volved, but which are crucial to _ try's overall economic development. . And few commercial banks ever engage a coun- Therein lies one of the causes of the we've seen some encouraging indica- in policy dialogue like the World Bank The ·World's Debt Problem current concern, and it explains why the major banks are now exercising more caution. That caution is welcome and· tions that the U11ited States is giving in• creasing attention to t~e problems faced by Third World countries. For example, routinely maintains with borrowing gov- ernments. The· nonideological, nonpoli- . ticized and wholly pragmatic economic necessary, but I want to stress · very · some progre~s seems to be underway to- advice and technical assistance that we firmly that a general commercial bank ward increased funding for the IMF, and provide are as valuable and as prized as fairs and, especialli about the impor- so.m e aspect of the Mexico liquidity cri- retreat from the developing world would the recent decline in interest rates, which · our loans and credits. · A. W. (Tom) Clausen, President of tance of helping developing countries to sis is that commercial banks may, in .re- bring catastrophic results to those coun- has been helped by a shift in the Federal Another obvious feature distinguish- the World Bank since July J, 1981, has accelerate their economic and social action, curtail their lending to all devel- tries that, while struggling with current Reserve Board's position, will provide ing us from the commercial banks is our been a supporter of vigorous U.S. lead- advancement, Mr. Clausen accepted to oping countries, "he said in a speech de- liquidity ·prob.lems, are nptinherently some reljef to the developing countries ership on international economic issues answer our questions, and we are grate~ livered in Boston last year. uncreditworthy and have good growth which have significant short-term com- since his days as President and Chief Ex- Mr. Clausen came to The World Bank potential. Such a retreat would be very meri'cal debt. An,d t he quickly coordi- ecutive Officer of the Bank of A'merica Jul to him. Between 1977 and 1980, exports ac- after serving 32 years with the Bank of shortsighted indeed. · nated international response to Mexico's and BankAmerica Corporation. T&E: What do you think is the grav~ crisis has been very encouraging. ·The World Bank consists of the Inter- national Bank for Reconstruction and ~ountedfor 27 percent of all the growth in U.S.. civilian employment. But inter- America and BankAmerica Corpora- tion, the last 11 years as President and est threat to the smooth operation of' the All in. all, I remain convinced that the TRUST FOREIGN Development (IBRD) and two affiliates, national trade has suffered zero percent Chief Exe. cutive Officer of both institu- international banking system? And how realistic are the forecasts ~hat the i~ter- debt situation today is manageable, and that, while acknowledging that a serious ESTATES TO the International Finance. Corporation (IFC) and· the Internation'al Develop- growth in 1981 and 1982, and more than two-thirds of the drop in national in- tions. Bank of America is the largest commercial bank in the world, with national banking system is in a crisis sit- problem exists, we should be very cau- AnANTIC BANK. -uation? t:ious about talking about an interna- ment Association (IDA).- The common .come of the United States since July · branches and subsidiaries in more than' · JOO countries. . · Clausen: Some pretty wild statements tional banking .crisis. Borrower and objective of these institutions is to help 1980 has been due to decline in exports. Born in,Hamilto_ n, Illinois, on Febru- are being made about th~ situation in the · lender concentration and the high gear- raise standards of living in, developing Mr. Clausen underscores the commer- Esta~ involving non-resident ary 17, 1923, Mr. Clausen graduated international banking system, and that's . ing of major lenders have aroused con- countries by channeling financial re- cial importance of.the developing·coun- decedents or heirs require a from Carthage College (Kenosha, Wis-· not l:lelpful. People read a pout a ''Third. cern, but the banking community is re~ sources from developed countries to the tries for this country's .economy by corporate fiduciary with three consin) in 1944 and received his LL.B. World debtcrisis" and conclude that the silient and sensible enough to take what important qualifications: · developing world. pointing out that the United States now from the University of Minnesota in \ banking system is. about -to collapse be- cor~ective measures are necessary. What At a time of troubling international sells 38 percent of its exports to devel. • Understanding of local cause the Third World cannot .repay its · we ask is that such measures not involve inheritance regulations. economic and financial strain unparal- oping countries, more than it sells to Eu- · 1,949. He is a graduate of the 50th Ad- vanced Management Program of the debts. Far be it from me to claim that a withdrawal of credit, but a continua- • Knowledge of local estate tax leled in the post-World War II era, we rope and the Soviet Union combined. there is no .problem. There is! But the tion -and, where adjustment is under· · regulations. feel that the views of Mr. Clausen would For this reason, Mr. Clausen is con- Harvard Business.School and is a mem- • A working arrangement with ber of the Business Council, a trustee of nature of it is riot sufficiently under- way, additional lending. be of interest to ·our readers. Firmly cerned that the general economic stag- key local banks. · the Brookings Institution, and a mem- stood. There is, in fact, no "Third . T&E: In what ways do the World committed io i_mproving public infor- nation may keep banks from lending to ber.of the California Bar Association. World debt crisis" in a general sense·. Bank and the International Develop- mation in this country about world af- d~veloping countries. "The most worri- Debt problems are country-specific, and ment Association (IDA) encourage eco- the problem is concentrated in relatively - nomic development that the private . few. As already' mentioned, most mid- banking community does not? Atlantic Bank is an affiliate of dle-in·come · countries should remain . Clausen: In a number of ways. But let National Bank .o f Greece, so we're tinued. and expanding flow of finance· 1970s as commercial banks helped to"re- -creditworthy, and some of them have me emphasize that· the work of the particularly knowledgeable on all T&E: While president and chief exec- trust and estate matters regarding • utive officer of the Bank of America, from the commercial system if they ar_e cycle OPEC surpluses resulting from the . even underborrowed. Banking credits World Bank and its affiliates supports non-resident decedents or heirs in you encouraged international lending. In to sustain their economic growth. Their two oil price increases of 1973 and 1979. have been concentrated in a limited and oft1;n ·precedes the activities·of t~e Greece - and we'll consider estates view of the recent possibility' of default borrowings accelerated from the mid- The action ·o f the banks was critical to number of large market borrowers. Bra- international commercial banks in the of $50,000 or more. For complete by several countries, do you think that the borr.owing countries' ability to ad- zil, Mexico, Argentina, Venezuela and. developing countries. 'At the global level, information on how we can help just to this unexpected shock in the Korea alone account for about half of all the Bank,-together with the IMF and the · you meet your clients' needs, call American banks. overextended them- us at 695-5400 . selves in making th_ ese loans, or do you . global economy. The commercial banks commercial bank lending to deveioping GATT, have helped to encourage o;- think that despite the risi<:s, the loans . have also been widening their relation- countries. The problem has arisen ·in derly monetary change, to reduce trade have had a positive effect on interna- ships with the .developing nations;· from countries that substantially ·increased barriers, and to develop the.weaker parts tional economic development? balance-of-payments lending into local- their borrowing · from commercial of the economy.and tackle poverty at the , Clausen: Some banks have .made bad currencr lending, and investmentin do- · sources at high floating interest rates and very roots: International ·commercial loans and have sometimes been ·over- mestic business. They are now, in fact, are now severely .suffering from de. banking depends on the relatively inte- eager; that's not unheard of in the busi 0 the major suppliers of foreign capital to pressed export markets. The extent and grated, dynamic, and peaceful world ness. And some countries have been them. nature:of the current worldwide reces- economy that these official institutions overambitious in their borrowing. :i3ut But have they overextended them- sion are at the root of this liquidity . have been nurturing. selves? Well, these are the facts: Com- problem. But a look at-'their growth; in- At the level of particular developing TRUST DEPARTMENT on the whole the commercial panking system's lending activities have had a mercial loans to non-OPEC developing vestment and export- records doesn't countries, the Bank's project lending very positive effect on economic devel- countries represented about 15 percent suggest that their accumulation of debt often provides·tlie infrastructural basis 960 Avenue of the Americas, opment. Don't forget that in the 19th of all foreign claims of banks reporting has been out of line with their longer-run for t he lending which commercial b~ks New York, NY 10001 • (212) 695-5400 century, America, then a developing to the Bank for International Settle- debt capacity, provided that the produc- do. And we are instituting new mecha- country, borrowed h_ eavily from Euro- ments (BIS) in 1981 and only about 6 tivity of investment can be maintained nisms for increasing the scale and scope Member F.0.1.c: pean banks, making possible the open- percent of their total assets . For all and protectionist trends in the indus- of commercial bank co-financing of our ing up c;,f the country. Today's develop- banks, claims against developing coun- trialized· countries can be halted. In or- projects. Our loans are long-term, ing countries, especially the middle-in- A. W. Clausen tries represented the limit of foreign der to adjust, the larger debtors are adding stability and balance to .a coun- come developing countries, need a con- · World Bank President claims and only 5 percent of total assets . .going to have to take _!lorrie politically try's debt structure·. Even more impor~ 36 TRUSTS & ESTATES I MA RCH 1983 T Rl,JSTS & ESTATES / MARC H 1983 37 share in the manufactured goods im- she joined the Bank too late to be taken ability, through IDA, our concessional- economic issues, and if it is tQ lead ef- ports o(the industrialized countries from into account in the most recent three- finance affiliate, to extend long-term fectively, it must now elicit coordinated INDEPENDENCE credits at zero interest to the poorest. of our member countries. There are 51 actlon by other nations, urging faster growth, and strong resistance to protec- under 7 percent to 13 percent. Since then, the deepening global recession has year replenishment of IDA's funds. To what extent we shall be able to support FOR THE BLIND countries that. depend on IDA today -:- 28 of them in sub-Sahara1:1 Africa - and tion\sm in both developed and develop- ing countri~. Thai is the only path out taken its toll, and the gathering winds of , the development needs of China over the protectionism threaten even worse to next few years will depend on whether THROUGH In recent years_ the of the bog-of stagnation. And since you were earlier expressing concern over the come. The lesson is clear: a return to economic growth, and a resistance to protectionism, could revive the. trend in The more intractable EDUCATION~ .. U.S. economy has debt situation, let me just add, with em- phasis, that it is far more probable that. ·manufactured exports that had been bringing important rewards to the more problem lies with stagnation will provoke debt crises than Tuition-Free been expanding.Jaster that debt-servicing problems will them- . successful developing country exporters, those developing such as higher rates of investment, than ever /Jefore in selves result in global contraction. 'higher per capita growtl:i rates and a c9untries heavily T&E~ Is the economic development of . its history, but the poorer countries inextricably linked rapid reduction in external deficits. In dependent on this area, then, increased volu~e was a other areas have to economic recovery in the more indus- ' ' trialized countries? ' definite plus for the developing country primary commodity exporters. 'expanded more quickly Clausen: Well, I think my last answer The more intractable problem. lies with exports makes that point pretty firmly, but in ·those developing countries heavily de~ this interdependent world, let's not for- pendent on primary commodity exports. the donor countries currently negotiat- · past experience with former IDA bor- get that the economic health of the in- In the current world recessio1;1,. com~ . ing IDA's next replenishment can agree rowers indicates that these current bor- dustrialized countries depends to a modity prices are severely depressed.- to substantially increase the level of as- \ rowers will one day be creditworthy. growing extent on the developing coun- Even without a global recession, their sistan~e earmarked for the poorest enough to borrow what they need at tries. To take a.n important ~xaniple: the prices, have a habit of rising and falling countries of the world. Western govern- market-rates. But they simply cannot do . current slump in Third World devel~p- draqiatically; ca~sing a high degree of. ments participating in those negotiations so now. That is why the negotiations that ment is aggravating unemployment here instability in the economies dependent should bear in mind that World Bank have just begun with IDA's donor gov- in the U.S. Exports accounted for 27 on exporting them. In this area, in- and IDA assistance to China and other Now a·blind mother can read to her child. ernments. to replenish its resources ·must percent of all growth in civilian eJ}lploy- creased export volume can bi:ing few' poor countries can help create economic succeed. We are all aware of the budget- ment between 1977 and 1980. But inter- benefits if prices are depressed, ~nd only conditions favorable to their. own com- The not-for-profit ary constraints imposed upon the indµs- nationai trade has suffered zero percent instability when they are wildly fluctuat- mercial interests. Hadley School for the trialized nations, but it i$ in no nation's vested interest - and certainly not in growth in 1981 and 1982, and more than two-thirds of the drop in the U.S.'s na- itig. Efforts to deal with the problem T&E: What were-the real changes fac- PLACEYOOR Blind needs to sustain and expand that of the·United States·- to p~rmit - these poorest societies, containing over tional income since July 1980 has been due to a decline in exports. Since we now through bilateral trade agreements and multilateral commodity agreements have ing you in moving from the Bank of America to the World Bank? ' ·raasTIN. its unique world had only limited success. Maybe more .. Clausen: Well, the.private sector was service of half the world's population, to sink into greater misery and despair. sell 38 percent of our exports tp devel- oping countries, more than. we sell to all effective agreements wili be achieved, my home, as you know, for more than THEIR FOTC:IRE individualized but the only real long-term solution is 31 years. As a commercial banker my T&E: What is needed for a world.eco- of Europe and the Soviet Union com- diversification into other exports, such These children share the same correspondence whole career was spent in that creative nomic recovery? bined, you can see the connection. Third as manufactures, and ·into agricultural. and competitive marketplace, and I de- instruction ·for hopes and dreams as many Oausen: Revive the engine of growth World markets for U.S. goods grew·very products including food, for· a more sta- sightless persons of veloped some strong biases through other boys and girls. But their in the industrialized countries. That's the rapidly in the seventies, but today, with ble domestic market. In the short term, those years. I find that experience., how- all races and creeds. first step. It appears that the recovery in , international trade growth at zero per- dream,s fl"!ay never come true domestic economic management policies . ever, in no way incompatible with my because they suffer. from the ·u .S. and other industrialized nations cent, those markets no longer provide- CAN is goi.ng to be slow, and if that is the that extra boost to employment in this to reduce the impact at home of fluc- tuating external prices can contribute.to new role as World Bank President. i'in 'convinced the private companies of the muscular dystrophy or related muscle-wasting diseases. YOU case.- recovery ,in the developing coun- tries, whose principal markets lie in the country. And if the situation is to change, the developing countries must be longer-term diversification. world can be a vital engine to secure a The·Muscular Dystrophy Asso· T&E: What has been the effect of growing global economy'in which the HELP? industrialized world, will also be slow. allQwed to earn the foreign exchange China's membership in the World Bank? developing nations increasingly become ciation (MDA), by seeKing This must not ~ !tllowed to happen. In- they need to buy the industrialized coun- Clausen: For a start, the population of signifi~ant partners. So I've brought-my the causel, of and cures for some Write to: dustrial nations that have made good tries' exports. That's why protectionism 700 Elm Street our developing-country membership has biases along with me with some pride: 40 neuromuscula1 diseases, progress in reducing inflation must now has to be resisted so vigorously; each side increased by almost 50 percent. That's a But obviously the great change is that is working to change that grim Winnetka, IL. 60093 comes out the loser if it isn't. opt for economic expansion. They must lot of new people to try to help, a lot of I am now work_ing in an organizati!7n present ·reality. By supporting find the right mix of policies that will T&E: You have said that developing new money for us to find, and a very big: a that is development institution as w~ll MD.A:s i.\Orldwide scientific lead to a reduction in real' interest rates countries are likely to push for more challenge. It's clear that China's accom- as a bank - one that is owned by 144 · without reigniting inflation. That's no· volume in their exports as they try to get research program through di· / plishments over the past generation in · .. member governments and operated by a rect bequests, gifts in tru~t easy task, but it's got to be done. And out of deb.t and by so doing decrease the / reducing poverty on a vast scale are uniquely qualified staff of international the United States ought to take thelead. prices of their goods. How can this vi- 9r other legacies, you can help without precedent, and we want to help civil servants drawn from over 100 na- In recent years the U.S. econpmy has · cious circle be broken? assure a brighter fµtu.re for them build on that. Our assessment is tionalities. That's a particularly stimu- these children - arid thousands HADLEY ~een expanding faster than ever befo~e in its history, but other areas of. the world econ~iny have expanded even Clausen: I haven't posed the problem in quite those terms. Certainly the devel- oping countries want and need to ex- that China will be one of the best per- formers in absorbing development capi- lating atmosphere in which to work: In my nineteen months as one of these in- of children and adults like them. SCHOOL FOR more quickly, so that the U.S. share of world total output is down to about one- pand their exports. Between 1980 and 1982, their annual export revenues tal and implementing projects effi- ciently. So far _we've approved loans for ternational civil servants I have learned · much about international cooperation For an explanatory brochure. ' "A Legacy of Hope," and additional THE BLIND quarter as compared to its dominant · leadership position in the years after the dropped $40 billion, while at the same time their annual debt-service payments six projects to~ling rather less than ,$700 million, about 40 percent of it in the form of IDA long-term, no-interest and global partnership in the economic and social field. I ,am more convinced . than ever that global peace and security · information about MDA. please contact: Robert Linder Comptroller Muscl!lar Dystrophy Association · Second World War when its share was ,went up $37 billion. Between 1970 and BIO Seventli Avenue Gift arid Legacy suppo_rted credits. China's clearly eligible for larger depend at least as much on that as on two-fifths of world ouput. But the U.S. 1980, the developing countries as a NewYork, NY J0019 amounts in IDA credits than that, but maintaining a military balance. D (212) 586-0808 is still looked to for leadership on global whole had been able to increase their TRUSTS & ESTATES I MARCH 1983 TRUSTS & ESTATES/ MARCH 1983 .39 38