Regional President Speech

SILAS KEEHN REMARKS WBBM BUSINESS BREAKFAS1 PALMER HOUSE JANUARY 29, 1987 FINANCIAL FORECASTS FOR 1987 I. INlRODUCT ION - l WAS ASKED TO COMMENl ON lHE lNlERNATIONAL DEBl ISSUE A. (RETORl DEPENDS ON TOPIC WORDING OR MODERATOR INlRODUCTION) B. GENERAL OPENING 1. A VERY IMPORTANT AND DIFFICULT MATTER 2. BUT SHOULD BE PLACED IN PROPER PERSPECTIVE 3. WHILE COMPLEX AND TROUBLESOME, PROGRESS BEING MADE AND MANAGEABLE 4. OUlLOOK MORE POSITIVE THAN MANY PERCEIVE 11 TO BE A. TEND TO FOCUS ON NEGATIVE ASPECTS - NOT FULLY APPRECIAlE PROGRESS THAT HAS BEEN MADE NOl A NEW PROBLEM FOR 1987 A. IN CURRENT CONTEXT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WBBM BUSINESS 1/29/87 PAGE 2 1. EMERGED WITH DIFFICULTIES MEXICO EXPERIENCED IN SUMMER OF 1982 A. VERY DIFFICULT PERIOD B. RECORD HAS BEEN GOOD 1. IN SPITE OF REPEATED DIRE PREDICTIONS A. DEFAULTS - DEBTORS CARTELS - r$12.1-4 < _v. l} I 1' J _ 1 T (. 2. RECURRING CHALLENGES HAVE BEEN MET FOR ALMOST 5 YEARS C. THE MACHINERY (MECHANISM FOR HANDLING) IS IN PLACE 1. MORE IMPORTANT ROLE OF THE IMF AND WORLD BANK HAS EMERGED A. EXTERNAL ELEMENT - CAN ENFORCE NEED FOR INTERNAL DISCIPLINE AND CORRECTIONS 2. ESSENTIAL COOPERATION/COORDINATION BETWEEN CENTRAL BANKS/COMMERCIAL BANKS HAS DEVELOPED A. CRITICAL PART OF MACHINERY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WBBM BUSINESS 1/29/87 PAGE 3 f Y•I ~ r - f .JI ~ ~ I r;::;cr:}...,U-<l'i ~ .A \ B. COMMUNICATION HAS BEEN EXCELLENT - NO SURPRISES 3. HAS BEEN TESTED REPEATEDLY - IT WORKS 4. PAST RECORD SUPPORTS EXPECTATION THAT WE WILL BE ABLE TO DEAL WITH THESE ISSUES r; Cv-t-1 .J ~ ..., -{'I ,-- { ., ,. 111. IMPROVED AND IMPROVING WORLD WIDE ECONOMIC SITUATION A. WITH PASSAGE OF TIME THE ECONOMIC ENVIRONMENT WITHIN WHICH THESE ISSUES MUST BE MANAGED HAS SHOWN PROGRESS 1. IN THE MAJOR ECONOMIES OF THE WORLD, THE EXPANSION CONTINUES 2. STARTING AT HOME, EXPECTATION BY MOST FORECASTERS THAT U.S. ECONOMY WILL CONTINUE TO GROW AT MODEST YET POSITIVE PACE 3. FORECASTS OF ECONOMIC GROWTH FOR MOST DEVELOPING COUNTRIES WHERE DEBT CONCENTRATED ARE POSITIVE - IMF PROJECTIONS AS BASIS FOR COMMENT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WBBM BUSINESS 1/29/87 PAGE 4 A. DEVELOPING COUNTRIES WITH DEBT-SERVICING PROBLEMS UP JUST UNDER 3% IN 1987 B. DEVELOPING COUNTRIES WITHOUT DEBT-SERVICING PROBLEMS UP ALMOST 4% IN 1987 C. THE 15 MOST HEAVILY INDEBTED COUNTRIES UP 3-1/2% D. BUT NON-OIL DEVELOPING UP ALMOST 4% 4. EXPORT OPPORTUNITIES FOR THESE COUNTRIES THIS YEAR POSITIVE, SAY, 4-6% 5. BUT MORE NEGATIVELY, THOSE DEVELOPING COUNTRIES HEAVILY DEPENDENT ON OIL EXPORTS A. CONTINUE TO FACE DIFFICULT PROBLEMS B. PARTICULARLY IF THEY EXPERIENCE NEGATIVE ECONOMIC GROWTH THIS YEAR AND REDUCED LEVELS OF EXPORTS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WBBM BUSINESS 1/29/87 PAGE 5 6. UNDER THOSE CIRCUMSTANCES, WOULD HAVE DIFFICULTIES GENERATING FOREIGN CURRENCY TO A. THIS WOULD BE PARTICULARLY TRUE IF OIL PRICES DECLINE ~a ,J 'rJ Cf>J- a. ~ "I ~1,,,A..,·rJ ~~ B. BUT EVEN HERE, A CONTINGENCY HAS BEEN PROVIDED FOR - PROVISIONS INCLUDED IN LAST RESTRUCTURING o:1A-V J C. MECHANISM IN PLACE • ✓ JJ C.~ I c:= 4 7. FROM AN EXPORT PERSPECTIVE, DECLINE OF DOLLAR HAS NOT HAD AS MUCH IMPACT ON SOME DEVELOPING COUNTRIES AS IS THE CASE WITH GERMANY AND JAPAN A. MANY DEBTORS LIKE KOREA - NOT A DEBT PROBLEM - TIED TO THE DOLLAR B. MANY OTHERS - MAJOR SOUTH AMERICAN ARE LOOSELY TIED Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WBBM BUSINESS 1/29/87 PAGE 6 (1) TEND TO DEVALUE (2) IN FACT, DEPRECIATED RELATIVE TO DOLLAR ( 3) EXPORT POSITIONS WON I T BE AS ADVERSELY AFFECTED AS DECLINE IN THE VALUE OF THE DOLLAR AGAINST OTHER CURRENCIES MIGHT SUGGEST ~CZ:r 'fO ---------B. WE TALK ABOUT LDC EXTERNAL DEBT AS A BROAD CATEGORY - ,..,c)-vr - () \ SUGGESTING THAT THE WHOLE CATEGORY IS BAD - JUST NOT RIGHT 1. MANY ARE SERVICING THEIR DEBTS ON SCHEDULE 2. TOTAL EXTERNAL DEBTS OF DEVELOPING COUNTRIES SOMETHING OVER $900 BILLION 3. OF THAT TOTAL, SOME $575 BILLION INVOLVES COUNTRIES EXPERIENCING REPAYMENT DIFFICULTIES 4. BREAKING THE NUMBER DOWN FURTHER, $240 BILLION OWED BANKS WORLD WIDE, ABOUT $100 BILLION TO U.S. BANKS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WBBM BUSINESS 1/29/87 PAGE 7 5. CERTAINLY A SIGNIFICANT AMOUNT BUT LOOMS A LITTLE LESS THREATENING THAN THE LARGER NUMBER C. AT SAME TIME, POSITION OF U.S. BANKS LENDING TO LDCS HAS IMPROVED J 1. TOTAL U.S. BANK Ci..A]MS AS PERCENT OF CAPITAL FROM 280% TO 175% FROM 1982 TO 1986 A. BANK CAPITAL POSITIONS HAVE IMPROVED OVER ~ r"- ' PAST FEW YEARS -- c,.. 1.t.L:,) Y ,) ~ ~1 tv'..) ~.,, B. IN A BETTER RELATIVE POSITION TO DEAL WITH PROBLEM C. AND CAPITAL EXPOSURES TO BANKS TO INDIVIDUAL COUNTRY RISKS DOWN SHARPLY FROM 1982 TO 1986 (1) BRAZIL FROM ABOUT 30% OF CAPITAL TO 20% (2) MEXICO FROM ABOUT 35% TO A LITTLE OVER 20% (3) AND SIMILAR TRENDS FOR ARGENTINA, VENEZUELA, PHILIPPINES AND NIGERIA Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WBBM BUSINESS 1/29/87 PAGE 8 IV. DON'T WANT TO SUGGEST THIS PROBLEM BEHIND US A. MUST CONTINUE TO MAKE PROGRESS AND ACTIVELY MANAGE l. DEPENDENT ON CONTINUED ECONOMIC GROWTH IN DEVELOPED WORLD A. SPECTER OF PROTECTIONISM VERY TROUBLESOME B. TRADE WAR EVEN IF SEEMINGLY FOCUSED ON DEVELOPED COUNTRIES OR DEVELOPING WITHOUT DEBT PROBLEMS (1) WOULD UNSTICK THE SITUATION V. CONCLUSION A. ON A NUMBER OF GROUNDS)THEN) INTERNATIONAL DEBT ISSUE DOES NOT LOOM QUITE SO LARGE 1. MECHANISM IN PLACE AND WORKING 2. ECONOMIC ENVIRONMENT FAVORABLE 3. LENDERS IN BETTER AND IMPROVING POSITION B. HOPE THESE COMMENTS WILL HELP TO PUT THIS ISSUE IN A MORE CONSTRUCTIVE PERSPECTIVE * * * * * Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1989, January 28). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19890129_silas_keehn

@misc{wtfs_regional_speeche_19890129_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1989},
  month = {Jan},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19890129_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}