Whether it represents a major shift in United States foreign policy - or just the personal view of Treasury Secretary Donald Regan - the call by Mr. Regan for a major overhaul of the global monetary system is an idea that should be given sympathetic study by Western finance ministers meeting in Frankfurt, West Germany this week.
Mr. Regan is calling for a new world monetary conference. It would address a number of international financial concerns such as hammering together a better system of emergency aid for debtor nations threatened by default on their massive bank loans (now totaling between $500 billion and $600 billion) from industrial nations and commercial banks. It would provide greater stability in the current fluctuating exchange rate system that has been in effect since 1973.
Given the fact that the Reagan administration has been adamant about not revising the present international monetary system, the proposals by the treasury secretary - combined with a current review of administration global economic policies - strongly suggest that the White House is commencing a major policy alteration in this area. If that is the case, the willingness to change cannot be too highly commended considering the gravity of the current world economic situation.
What is implicit in Mr. Regan's call for a new monetary conference is the recognition that economic circumstances sharply affecting one nation can have severe repercussions throughout the international community. The Panic of 1873, for example, one of the first truly global economic downturns, resulted in large part because of speculation taking place in Prussia. The Great Depression of the 1930s was intensified because of trade protection laws put in place by most industrial nations, as well as the scuttling of the London Economic Conference of 1933 by the Roosevelt administration. That conference was considering an international agreement to stabilize currencies when Mr. Roosevelt called the US delegation home.
While few economists would go so far as to equate the high unemployment levels of the 1980s with the magnitude of the challenge of the early 1930s, there is little dispute about the need to prevent developing nations heavily in debt from triggering the type of limited financial default that could quickly spiral into something far more dangerous. The current catch-as-catch-can system of aiding nations facing default is hardly conducive to ensuring a secure financial order. One example of this lack of coordination is the admittedly useful new US loan to Brazil to help that nation meet its massive interest payments to international lenders. Any step to provide greater coordination involving such emergency loans should be given the closest attention.
The Reagan administration has come far in its global economic thinking since the meeting of the International Monetary Fund and the World Bank at Toronto earlier this year. Among other steps, the administration has now accepted a major increase in funding for the IMF. And, in fact, the five nations meeting at Frankfurt this week - the US, Britain, West Germany, Japan, and France - are considered close to completing a plan to expand IMF lending authority.
The call by Treasury Secretary Regan, however, goes far beyond just this one issue. Mr. Regan's proposal for an international monetary conference should be given priority attention by all industrialized nations, including the US.