Do you think there's any upside limit, as far as financing goes, to what the commercial banks can lend to the developing countries? If so, how close is the American banking system to reaching that limit?

Saying "developing countries," or "LDCs," is sort of like saying "Americans." It hides a lot of diversity. There are different categories of developing countries. Some countries are able to handle large amounts of debt and some are not. The ability of Mexico to manage its affairs and get public underwriting on Wall Street, which they do, far exceeds that of, say, the Gold Coast. I don't think you can draw up a balance sheet and label it: developing countries.

The amount of money that has gone out from the commercial banking system to borrowers in developing countries is large by previous standards. Its uses fluctuate, but most of the money generally goes to finance exports. You must remember that all exports in the end are financed by the people who exported them. That's why the Arabs in the end will have to finance the export of oil.

The pattern of this lending will shift, but I am not one of those who think that there's a great international crisis abroad in the world because of the borrowing of developing countries. Not when it's being done soundly.

There will always be certain loans that are bad news, but given the opportunity, governments usually work them out. One problem loan we had was in Liberia a number of years ago. They built an executive mansion. The budget was $1 million. When it came in at $22 million, there were unpaid suppliers all over the world. We talked President Tubman into getting someone from the International Monetary Fund to put in a solid financial program. The debt was rescheduled and all repaid. That's the real answer--that it's within the capability of men and women to adopt a program that will, in fact, make a sound debt structure. I agree with you that some countries do not have that right now.

Along the same lines, the House Banking Committee said there would be no bailouts for any banks that suffer the consequences of bad LDC loans...

We have never asked for a bailout.

Wouldn't you like a safety net like that?

I don't really think so. The most important thing anybody owns is his credit status. And if you just pull the cork on the credits, what do you do then?

Suppose LDC loans were backed by gold?

There isn't enough gold in the world. There hasn't been any gold put into the monetary base in three years. The only thing that finances trade is reverse trade. Nothing else. Any difference in the trade balance has to be made up by capital inflow or borrowing. It's a seamless robe.

That's why I don't get too worried about it. We run a sovereign risk program in every country in the world. Every quarter we evaluate the political risks, the economic risks, and state of the economy. Then we cut back or increase our exposure as the judgment of our officers dictates. No, I don't think that government bailouts, or putting overseas lending on the gold standard are viable substitutes for good credit judgment.