IMF moves to ease 3rd-world oil funding
Entering what may be a turning point in its history, the world's financial and monetary leadership has shifted its attention from a problem that primarily affects the rich, industrialized nations and is focusing more on the developing world.
This change resulted in a decision last week to drop, at least momentarily, a proposal to remove some of the massive and potentially destabilizing excess dollars floating around the world.
Instead, finance ministers and central bankers, meeting here as the so-called Interim Committee of the International Monetary Fund (IMF), intensified the search for the best ways to help economies struggling under the weight of rising oil import bills by recycling billions of petrodollars to their aid.
This regular IMF leadership meeting focused on what a final declaration referred to as "the dramatic and widespread rise in rate of inflation" and the rapid increase in the payments deficits of developing countries.It noted that the deficit of the poor countries would account for $70 billion of the expected
The fund's managing director, Jacques de Larosiere, commented: "The problem of financing these deficits for the developed countries is not as acute as the need of the developing countries, especially those who have no access to the financial markets."
Part of this shift in emphasis resulted from the increasing problems and influence of the nonindustrialized nations in the fund, which has just been enlarged by the addition of China. Italian Finance Minister Filippo Pandolfi, who chaired the Hamburg meeting, acknowledged, "It would have been impossible to avoid reordering our priorities.'
Widespread indifference or outright opposition expressed at the meeting throughout the IMF membership apparently doomed the American-inspired plan to create a new "substitution account." This would have permitted foreign holders of the estimated $800 billion around the globe to exchange some of their cash for the IMF's substitute reserve asset, known as special drawing rights. This, backers felt, would have removed some of the threat to world currency stability which has surfaced regularly in recent years as holders of these dollars unloaded them and disrupted exchange rates, national treasuries, and international trade.
This plan, formulated by the former US undersecretary of the Treasury, Anthony M. Solomon, has been under study for about three years and might have been completed at this meeting for acceptance by the full IMF annual session in the fall.
However, with Mr. Solomon now gone from his Treasury post and the US administration in the midst of an election campaign, the steam went out of American support for the plan -- one that would require congressional approval for probably additional spending and a further loss of the dollar's standing in the world. This was combined with considerable technical reservations by the European Common Market and opposition by the developing nations and oil exporting countries here.
One such opinion was expressed by Ernane Galveas, the finance minister of Brazil, now the world's 10th-leading economy, after the big seven industrialized powers, the Soviet Union, and China.He told sources here he was glad the substitution account had been put on the back burner, because it might have actually withdrawn funds from the international money markets, funds that could have been lent to developing countries.
Instead, both he and other third-world participants at the meeting suggested that the IMF and other institutions turn to the more widespread concern about recycling the estimated $115 billion expected to wind up in the hands of the oil-producing countries this year. Some had linked their approval for the substitution account to progress on their recycling needs.
Fred Bergsten, assistant US Treasury secretary for international affairs, called attention to this problem shortly before the IMF meeting. He noted that current recycling problems resulting from the recent wave of oil price increases might be different from the adjustments needed after the 1973-74 oil shocks, because vastly greater amounts were involved.
But despite general agreement that, because of these problems, the international monetary system is entering a new and uncertain period, there were clear differences between industrialized and developing countries on how to cope with this potential crisis.
Representatives of developing countries here continued to press their recent claims for more funds from the International Monetary Fund and other sources and for easier lending terms for them by the institution. They also sought a greater voice in IMF decisions. For instance, the fund has been under fire in recent weeks and months from countries like Jamaica, which just broke off negotiations with it for cash to help its beleaguered economy. The fund has been charged with trying to impose terms that are too stiff for third-world countries and oriented more toward the economies of richer nations.
Delegates from the West, however, tended to believe that the IMF would have enough financial resources, at least momentarily, or was proceeding to obtain them, to meet expected borrowers' demands in the future. They also felt the institution should retain its traditional role and prudent lending principles.
The West German finance minister, Hans Matthofer, likewise suggested that oil-producing countries should become directly involved in financing some portion of their surpluses to deficit countries.
The fund's Mr. de Larosiere said his staff has been actively looking at a number of reforms, including many recommended by the recent United Nations commission chaired by former German Chancellor Willy Brandt on aid to the third world.