SMOOTHLY . HOWEVER , THERE COULD CONCEIVABLY BE AN AWKWARD SEQUENCE OF EVENTS IN THE SHORT-RUN . FOR EXAMPLE , DELAY IN A BUDGETARY CORRECTION COULD LEAD TO A FURTHER RISE IN INTEREST RATES AND A CONTINUED HIGH EXCHANGE RATE , CAUSING A CYCLICAL SLOW-DOWN EVEN BEFORE THE BUDGET DEFICIT WAS CORRECTED . A DELAYED BUDGETARY CORRECTION COULD THEN LEAD TO A MORE SEVERE CYCLICAL STOP . THE WORLD ECONOMY COULD AGAIN EXPERIENCE FOR A WHILE BOTH RISING INTEREST RATES AND A SLOW-DOWN IN WORLD TRADE .
FURTHERMORE , IF THERE WERE A PRECIPITOUS CHANGE IN MARKET EXPECTATIONS OF THE DOLLAR'S EXCHANGE RATE THE UNITED STATES WOULD FACE THE PROSPECT OF A CONSIDERABLE INFLATIONARY IMPULSE . WHILE THIS WOULD NOT BE DIFFERENT FROM THE ACTUAL EXPERIENCE IN EUROPE IN THE LAST THREE YEARS , A POLICY REACTION TO EXTINGUISH THIS INFLATIONARY SHOCK COULD ALSO CAUSE A RENEWED RECESSION . ON THE EUROPEAN SIDE THERE IS ALSO THE RISK THAT A SHARP WEAKENING OF THE DOLLAR COULD BE A POTENTIAL SOURCE OF INSTABILITY IN INTRA-EUROPEAN EXCHANGE RATE RELATIONS .
THE INTERNATIONAL INTEREST IS TO MINIMIZE THE RISKS OF DAMAGING INSTABILITY IN THE WORLD BUSINESS CYCLE AND MONETARY RELATIONS . TO THIS END , THE SUMMIT COUNTRIES AS A GROUP SHOULD BE PREPARED TO CONSIDER A BALANCED SET OF ADJUSTMENTS TO BUDGETARY AND MONETARY POLICIES . THE COUNTERPART TO A NECESSARY BALANCE OF PAYMENTS CORRECTION OF THE UNITED STATES SHOULD BE CAREFULLY DISTRIBUTED BETWEEN JAPAN AND EUROPE TO LESSEN PRESENT IMBALANCES ( JAPANESE SURPLUS ) AND PREVENT A LARGE NEW IMBALANCE IN EUROPE . IN THE AGGREGATE , A CONTINUED SUBSTANTIAL EXPANSION OF WORLD TRADE WOULD NEED TO BE ASSURED . GROWTH IN WORLD IMPORTS IS EXPECTED ON PRESENT FORECASTS TO SLOW FROM 9,5 % IN 1984 TO 5,5 % IN 1985 . EUROPE AND JAPAN SHOULD BE PREPARED TO SUPPORT THE BUOYANCY OF WORLD TRADE WITH ADEQUATE DOMESTIC GROWTH IN A PHASE OF SHARP SLOW-DOWN IN THE UNITED STATES .
ON THE PARTICULAR PROBLEM OF HIGH WORLD INTEREST RATES , IT WOULD BE APPROPRIATE IF THE UNITED STATES CONTRIBUTED TO REDUCING ITS BUDGET DEFICIT BY REDUCING THE TAX-DEDUCTIBILITY OF THE INTEREST PAYMENTS OF HOUSEHOLDS . THIS WOULD PUT A DOUBLE DOWNWARD PRESSURE ON INTEREST RATES .
POINT 15 : EUROPE AND JAPAN SHOULD SEEK TO ASSURE THAT THEIR OWN ECONOMIC RECOVERIES PROVE SELF-SUSTAINABLE AS AND WHEN THE UNITED STATES MOVES , PRESUMABLY IN 1985 , TO REDUCE ITS BALANCE OF PAYMENTS AND BUDGET DEFICITS , POSSIBLY WITH A COOPERATIVE SET OF POLICY ADJUSTMENTS ON ALL SIDES AND A MORE POSITIVE MANAGEMENT OF EXCHANGE RATE RELATIONS BETWEEN THE THREE PARTIES .
4.2 IMPROVING THE WORLD FINANCIAL AND TRADE SYSTEM
A SECOND POTENTIAL SOURCE OF INSTABILITY IN THE WORLD ECONOMY LIES IN THE DEBT SITUATION , IN PARTICULAR IN THE LARGE LATIN AMERICAN COUNTRIES . FOR THE LATIN AMERICAN SUB-CONTINENT , PRESENT DEBT SERVICE BURDENS ARE ON AVERAGE OF THE ORDER OF 50 % OF EXPORT EARNINGS , WHEREAS THIS RATIO IS ONLY