Investing in the world
What should be the right level of US investment to protect global recovery? Why, you may ask, use that word? - investment. Because businesses ensure growth by investing capital in new plant and equipment. Individuals and families plan for the future by investing savings in education and homes.
Delegates to last week's annual meeting of the International Monetary Fund and the World Bank seemed more than clear about one matter: The extent to which the world recovers from recession, as well as the well-being of the international banking community, will partly hinge on whether the US contributes an extra $8.4 billion to the IMF. Such a one-time contribution is not a bailout of big banks. It is an investment in recovery - and the world trading system.
The IMF, formed back in 1947, provides loans to financially-strapped nations to meet balance of payment and other debt problems. In other words, the IMF provides the financial wherewithal to keep the world trading system working to avoid default by any nation that could trigger a series of debt defaults.
The Reagan administration has urged Congress to pass legislation providing for the new $8.4 billion in funding. Both houses enacted separate versions of the legislation. But a final measure has been held hostage to poltical pressures. Democrats want the funding linked to an increase in new federal assistance for housing. Republicans used the IMF issue to attack Democrats - even to the extent of suggesting that some Democrats aided communism.
As we have noted on this page, the IMF issue is far too crucial for politics as usual. Some 4 percent of total US gross national product depends on trade to developing nations - the very countries that most frequently need IMF financial help to keep their economies functioning.
Concerns about default have receded somewhat from a year ago, following a number of international loan packages. But that doesn't mean that the dangers of default are gone. Indeed, a new loan package for Brazil of about $6.5 billion was put together behind the scenes at last week's IMF meeting. Brazil carries a
Last week's IMF meeting was also notable in that member nations reached a compromise that will ensure that debtor nations have access to the IMF's pool of funds.
In short then, delegates to last week's meetings made additional progess in making certain that the IMF can meet world credit needs. Other nations are pledging help: Western Europe, for example, $3 billion. It is now up to the US to come through.
