World monetary reform may include tougher `tsk, tsk'
The world's major noncommunist industrial powers are setting up a system for economic peer review. In ordinary language, they will be saying to one another, ``Naughty, naughty, you have been misbehaving economically.'' In the jargon of international monetary affairs, it is called ``multilateral surveillance.''Skip to next paragraph
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The goal of this proposed system is to increase economic cooperation and coordination among the industrial countries, hoping this will reduce troublesome fluctuations in foreign-exchange rates, notes David C. Mulford, assistant US Treasury secretary for international affairs.
Mulford and the deputies of the finance ministers of 11 industrial nations have been getting together to consider reform of the international monetary system. They have agreed on a tentative program of modest revisions of the system. One of them is this peer review system.
These deputies, who know one another well, in the past couched their economic criticism in more or less friendly terms. The new system, however, would be more formally organized -- if it is approved by the ministers at a Group of 10 meeting in Tokyo June 21 and then by the other members of the International Monetary Fund at their October meeting in Seoul.
By a quirk of history, the Group of 10 actually consists of 11 nations. They are, besides the United States, West Germany, Britain, Japan, Canada, France, Italy, Belgium, Holland, Sweden, and Switzerland. The representative of Switzerland, which is not a member of the International Monetary Fund (IMF), is presumably invisible and not counted.
Developing countries have been complaining about the ``asymmetry'' of the world's monetary system. When they have international payments problems, the IMF not only is critical of their domestic economic policies but insists on economic change before lending any money to them. They have to tighten the money supply, reduce government spending, and do all sorts of politically nasty things.
But as the developing countries see it, the major industrial nations get away with economic sin scot free. The US government, for example, goes badly into the red. This in turn probably boosts interest rates, hurting developing-country debtor nations. But the IMF (and certainly not the developing countries) really has no leverage to demand reform of the US, or, for that matter, rarely any of the Group of 10. In a world of floating exchange rates, capital inflows balance trade deficits. The 10 don't usually have to ask the IMF for financial help.
Mulford admits major sovereign industrial powers can't be forced by outsiders to change economic habits.
There is another type of surveillance: annual economic reviews by the IMF. In the case of the industrial nations, the aim is primarily to encourage voluntary reform. Managing director Jacques de Larosi`ere or other IMF officials can say ``tsk, tsk'' to a nation, either behind doors or in the public. The private advice, it is hoped, will change the minds of politicians. The public criticism is presumably aimed at swaying public opinion in democracies toward favoring reform. It is usually done with considerable politeness.
Finance ministers are now talking of ``enhanced'' IMF surveillance. What that means is unclear, but likely it means IMF officials can make more forceful remarks.
Under the tentative agreement for ``multilateral surveillance,'' Mr. Larosi`ere will urge all countries to adopt policies to promote monetary stability. In its annual review of the world economy, the IMF will examine the effect on the world monetary system of industrial-nation policies -- presumably more critically than it now does.
While this chapter is in preparation, the finance ministers and central bank governors of the Group of 10 will review its conclusions, sometimes undoubtedly rapping each other on the knuckles. The discussions will be confidential. But the chairman of the meeting will prepare a summary of what was said about the ``appropriateness'' of various national economic policies.
It was not decided whether that summary should be made public or not. The US, Britain, and some other nations thought this might put pressure on governments to alter policies, according to one report. As the tentative agreement stands, the chairman will decide on the matter of publicity.
Still, what Mulford called the ``whip hand'' is usually held by domestic political and economic considerations. Politicians, however, are recognizing more and more the importance of international economics to domestic welfare. A Thursday column