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TIME: Almanac 1990
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1990 Time Magazine Compact Almanac, The (1991)(Time).iso
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110689
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1990-09-22
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BUSINESS, Page 66The Harvard Debt Doctor's Controversial CureBy John Greenwald/With reporting by Elizabeth Love/La Paz
To Jeffrey Sachs, the glaring gap between rich and poor in
Latin America is a major cause of the debt crisis that has racked
the region. The boyish Harvard economist, an adviser to debt-ridden
countries from Bolivia to Poland, blames wealthy Latin elites for
dodging taxes and arranging self-serving subsidies that have
"sucked the blood" from many governments, forcing them to borrow
heavily.
That blunt diagnosis is typical of Sachs, 34, an economics
wunderkind who was a tenured professor at 29 and has become a
champion of debt relief for developing countries. He first gained
renown for his advice to Bolivia, which slashed its inflation rate
from more than 20,000% in 1985 to 15% today. When Sachs visited
Argentina last June, talk-show hosts rushed to schedule interviews.
In a single hectic week last month, Sachs was in Peru and Brazil
and then jetted to Warsaw, where he advises the new government.
Sachs' message is simple: debtors must reform their economies
by methods that include collecting more taxes from the elite, while
U.S. banks must forgive at least half their $59 billion of loans
to Latin borrowers. "I don't believe we should move in small
steps," says the economist.
Such advice has often placed Sachs in a cross fire between U.S.
bankers, who oppose large-scale debt forgiveness, and populist
foreign critics, who resent his calls for fiscal austerity. Walter
Wriston, the former chairman of Citicorp, whose Citibank unit has
more than $8 billion in outstanding Latin American loans, calls
Sachs "a paid flack for the countries of Latin America." Wriston
argues that widespread loan write-offs would prevent Latin
countries from receiving new credit. At the same time, Julio Bravo,
finance secretary of the Bolivian Worker's Central Union, charges
that as a result of Sachs' advice, "salaries have decreased, the
firing of workers has increased, and policies respond to the
interests of the business sector."
Sachs, whose work in Latin America is underwritten by the
United Nations, responds that "if one person can be attacked from
so many directions, there hasn't been enough contact between sides"
in the debt crisis. "Much of my work," he notes, "is just sitting
quietly in a back room analyzing data with members of the
government." Sachs did that on a 1986 trip to Bolivia, when he
arrived to find that the Planning Minister had resigned and the
government was ready to drop its anti-inflation program. But after
examining the latest figures, Sachs argued that the program was
sound and persuaded leaders to stick with it.
In the same vein, Sachs believes that the Latin debt crisis
will eventually ease. He considers a plan that Treasury Secretary
Nicholas Brady unveiled last spring, which calls for limited debt
reduction, a modest but encouraging step. "There has been a lot of
progress," Sachs says. "The thinking is much more realistic."