(FORTUNE Magazine) – TREASURY SECRETARY James Baker's rescue plan for troubled debtor countries includes a blunt message to their governments. The U.S., he says, is tired of watching less developed countries borrow huge sums, only to let cash pour out the back door as fleeing private capital. This year capital flight appears to be accelerating in some countries, most notably Mexico. Baker wants these countries to take tough steps to stop the drain before they obtain the $40 billion he hopes will be pumped into them over three years. The outrush of capital, while below the frenzied volume of a few years ago, is doing more damage than ever to the economies of the heaviest borrowers. In 1981 and 1982 an estimated $51 billion moved out of the 15 major debtor ! countries targeted by Baker. But that was more than offset by some $81 billion of newly borrowed funds coming in from banks alone. Last year's capital flight from these countries, estimated at $8.7 billion, was countered by only $9 billion heading the other way. This year the debtor countries could suffer a net loss of capital. At least as much money is believed to be taking flight as in 1984, and the flow of new bank loans has stopped. What's needed to halt capital flight, say economists, are tough-minded economic policies in the borrowing countries, the kind that make investors of all stripes want to put their money to work instead of taking it out. That means cutting budget deficits, removing barriers to investment by foreigners, allowing freer trade, and avoiding currency overvaluations that virtually invite citizens to ship their money elsewhere before the official exchange rate falls. While those policies are being put in place, a host of short-term measures -- exchange controls, tight monetary policies -- could induce some capital to sit tight. What troubles bankers is that so few governments, in Latin America or elsewhere, have had the tenacity to stick with policies that can close the back door. Since most capital flight is illegal, no reliable statistics exist on how much is moving across national borders. Rough estimates and anecdotal evidence suggest the biggest outflows since the debt crisis heated up a few years ago have been from Mexico, Brazil, Venezuela, Nigeria, and Argentina. Morgan Guaranty Trust Co. of New York estimates that some $4 billion moved out of Mexico in 1984, about half the previous year's loss. Venezuela lost $2.7 billion, the same as in 1983. Brazil's loss, $2.2 billion, represented a 40% increase. Lesser but worrisome amounts have left Uruguay and Peru. Although Morgan Guaranty's figures for the Philippines show an inflow slightly greater than the outflow, others say capital flight there is large and growing. ''What's amazing is the phenomenal ability of individuals to go on exporting capital year after year, cash on top of cash,'' says a longtime expert on international trade and finance. Some capital leaves as currency stuffed into suitcases. Far larger amounts are shunted by more elegant methods, such as understating invoices on exports. A Brazilian exporter, for example, might set up a shell trading company in Miami, say, or the Netherlands Antilles. He buys a shipment of soybeans with a final sale price of perhaps $1 million in hard currency. He sells the soybeans to the trading company for $800,000 and reports that sale to the government. As required, he later converts this amount into cruzeiros at the official exchange rate. But the trading company makes a $200,000 profit that stays overseas. Discrepancies in trade statistics suggest that these shenanigans have become especially popular with Mexicans. Mexico says its exports to the U.S. totaled $14 billion in 1984, while the U.S. Commerce Department says Americans imported $18 billion of Mexican goods. Much of the difference between the two figures is capital flight: the exporters apparently received more money for their wares than made it back home. Many capital movements, legal and otherwise, take advantage of loopholes in government regulations. ''Things change often, almost overnight, and sometimes by whim,'' says Theana Kastens, founder of Intercurrency Exchange of New Rochelle, New York, a firm with a growing business of looking for escape hatches. Kastens, 31, spent six years at Deak & Co., one of the world's largest currency specialists, where she headed a unit dedicated to helping customers get their cash out of countries with exchange controls. Kastens's clients, about half of whom are residents of other countries, are referred to her by banks and other contacts. ''We are very busy,'' she says. ''Half a million dollars a day is nothing.'' Kastens hunts for loopholes that will permit money to move out easily and legally. When no loophole turns up, she acts as a broker, trying to find a business willing to buy the country's currency at a discount from the official exchange rate. Failing that, trade deals can often accomplish the desired results. Meyrick Payne, 41, a Stamford, Connecticut, trade specialist, looks for commodities not subject to a country's export controls. A good example would be Nigerian shrimp, which Payne might advise a businessman in the African country to buy with local currency and sell or barter abroad. The proceeds find their way into the businessman's overseas bank account. ONE TRICK, of borderline legality, is for a resident of a debtor country to borrow abroad, using a deposit in a local bank as collateral. For several years, Filipinos anxious about the country's future have been depositing money in Manila branches of foreign banks and borrowing against the deposit in, say, the U.S. In effect, they have moved capital abroad for investment. Ordinary citizens use a simpler approach: buying black-market dollars, which is easy to do in Manila's Binondo district (see photo). Once capital flight has become a way of life in a country, only credible and consistent policies can stop it. A few slips and the flight accelerates, as it did in Mexico. Partly to win a mid-1985 congressional election, the government took aggressive steps to stimulate the economy. To keep prices of imports down, the authorities simultaneously propped up the peso. By late summer capital was flooding across the Rio Grande. William Herrera, head of international banking at the Texas Commerce Bank in El Paso, says the bank's daily inflow of Mexican deposits doubled to between $3 million and $4 million and stayed at that rate until late November. Then the Mexican government allowed the peso to fall sharply and tightened exchange restrictions. These measures appear to have slowed the outflow considerably, but at the first sign of renewed weakness in the peso the flood could resume. Draconian steps can halt and even reverse capital flight, at least for short periods. In June the government of Argentina's President Raul Alfonsin launched a stern anti-inflation program, freezing wages and prices and pushing inflation-adjusted short-term interest rates up to 6% a month. The monthly inflation rate, which had reached 30% in June, has plunged to 3%. Those sky- high interest rates are keeping capital at home and may even be pulling some back. Argentina's approach has many drawbacks. The minute the government eases up on interest rates, money could again take wing. Meanwhile, any capital that is coming back is purely short term. ''When we talk about getting capital to return, we are talking about long- and medium-term investments,'' says Gustavo Grinspun, Argentina's deputy financial representative to the United States, Canada, and Japan. Those high rates are discouraging most longer-term investment because they impose forbidding costs on doing business in Argentina. Whether Argentina can attract long-term capital will depend on the next phase of its economic program, which will stress far-reaching reforms along with eased interest rates. Alfonsin intends to sell off state-owned enterprises, spur exports, and keep pruning the government deficit. But there's tremendous skepticism that the reforms will get very far. ''This is one of several dozen plans Argentine governments have enacted over the past 40 years,'' says Jeffrey Sachs, a Harvard economist who says it's too early to declare victory. Skepticism is equally appropriate in all the other debtor countries Baker hopes will mend their ways.