Word: interests
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Dates: during 1980-1989
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...commercial banks would be handed over to the central bank of the debtor. The commercial banks would be able to write off the debt as a loss and donation for tax purposes, while the debtor country would put a percentage of the debt into a local currency deposit. The interest would be directed into an antidrug fund for financing crop substitution and other development projects in areas where cocaine is produced...
...economists forecast that the U.S. gross national product, after adjustment for inflation, will grow a poky 2.3% in 1989, down from an estimated 2.8% last year. The economy will slow as the Fed's tightening grip on the money supply pushes up interest rates. At a growth rate of about 2% or less, most economists think the U.S. can expand without getting out of balance. "This is a slowdown the Fed can be happy with," says David Wyss, chief financial economist for Data Resources...
...that pace keeps up, the Fed may boost interest rates to restrain growth. Says Sinai: "The Fed has already tried to introduce a mild dose of tightening to slow the economy. But it just isn't working so far." Interest rates have been steadily climbing since March. The federal funds rate, which is the interest that banks charge one another on overnight loans, has increased from 6.5% to nearly 9.5% during the past nine months. Economists polled by TIME estimate that the prime lending rate will climb from its current 10.5% to 11% by June but will end the year...
...will lose confidence." Says Melton: "In principle, this can be done with such awe-inspiring precision that the economy slows down to a growth rate of exactly 2% and inflation starts to slow. But as a practical matter, it rarely works out." If credit is too tight, the resulting interest- rate run-up could trigger a recession. And if the Fed allows inflation to quicken, the markets will grow panicky and the dollar could grow shakier...
...weaker dollar will make the Fed's situation even more precarious. If foreign investors fear that the U.S. financial system will become unstable, they may cut back their investments in Treasury bills and other dollar- denominated securities. The Fed would have little choice but to boost interest rates to make the currency more attractive. Since September the dollar has lost about 5% of its value against the currencies of major industrial nations, and now trades at about 125 yen. This has wiped out most of the gains it made during the first nine months of last year...