PLO role at World Bank splits US, Arabs; oil states may withhold funds for projects

At the very moment that armed conflict at the head of the Persian Gulf puts in jeopardy the flow of oil to the world, a parallel threat has developed to the flow of oil money into the world economy.

In the one case, hostilities between Iraq and Iran could disrupt the pumping of oil and the tanker traffic needed to carry it to the outside world. In the other, United States domestic politics in a presidential election year are jeopardizing the willingness of oil-rich Arab states -- primarily Saudi Arabia and Kuwait -- to contribute to World Bank and International Monetary Fund (IMF) development and balance-of- payment loans.

The gravity of this latter threat can be measured by:

* The tension and sensitivity at both World Bank and IMF headquarters here in Washington as they prepare for their joint annual meeting next week.

* The fact that the oil-producing countries hitherto providing major funding to the organizations are about the only ones in the world today building up significant and available foreign exchange surpluses.

What has triggered the crisis is the handling here of a request from the Palestine Liberation Organization (PLO) to be invited to next week's joint meeting as an observer.

Supporters of the PLO request -- and they include virtually all the nonindustrialized World Bank and IMF members -- are outraged at what they see as heavy-handed US tactics to block the PLO from turning up here as an observer at the annual meeting in this US presidential election year. White House eyes are thought to be more on the Jewish vote in New York State and elsewhere than on the two organizations.

The US and its principal associates in both organizations are outraged at what they see as an effort by the nonindustrialized countries to politicize the World Bank and the IMF by bringing them into the Palestine issue.

Saudi Arabia is the only nonindustrialized country to have a chair of its own among the executive directors of the IMF (but not of the World Bank). Consequently, the main battle over the PLO here has been within the IMF.

The view of the Saudis and other Arabs is that:

1. It is the US that is politicizing both institutions.

2. The issue is not so much the PLO as US willingness to change the rules in the middle of the game when it suits American political purposes -- thereby raising the question of the rule of law within international institutions.

3. US action on this particular issue raises doubts about the safety or investments if the latter are lodged anywhere where US political needs of the moment might dictate a tampering with them.

Until this year, the chairman of the joint World Bank-IMF yearly meetings has had the final say on who should be invited as observers to them. The PLO request for observer status -- which does not carry with it active participation in any form -- was first made last year.

Last year's chairman, New Zealand, turned it down. The decision was accepted , but it prompted the Group of 77 -- actually some 120 of the world's nonindustrialized countries -- to pass a unanimous resolution in Belgrade just a year ago calling for observer status for the PLO at this year's World Bank and IMF meeting.

By midsummer this year, this year's chairman, Tanzanian Finance Minister Amir Jamal (whose country is a member of the Group of 77) has made it clear he would be inviting the PLO.

But late in July the US took an initiative aimed at getting World Bank and IMF members to overturn Mr. Jamal's decision. The World Bank's president, Robert S. McNamara of the US (who some members think should play a nonpartisan role), and the IMF's executive director, Sam Cross, also of the US, submitted parallel draft resolutions calling for: (1) proposals on amending the rules on observers to be prepared by March 1, 1981; and (2) limiting this year's observers to those at the 1979 meeting.

In other words, a formula to keep the PLO out this year and (in Saudi eyes) a proposal to deprive the chairman of his established right to invite observers the moment a prospective observer did not suit the US.

The Saudis decided to challenge this within the IMF. They knew they could not muster a majority to defeat any US proposal because voting on substantive issues is not based on head counts but on a weighted procedure that gives the industrialized countries have a built-in majority.

But the Saudis did have a narrow opening through which to block the US -- the rules establishing a head-count quorum of 71 for any polling of the 140 IMF members. They, therefore, lobbied to try to deny the US this quorum and urged IMF members not to respond to the vote call.

When the initial deadline for counting the votes, Sept. 9, drew near it was rumored that only some 40 votes had been cast, far short of the quorum of 71. The US then sought and got an extention of the deadline until 6 p.m. Washington time Sept. 19.

That deadline came and went without any formal announcement of the result. Sept. 19 was a Friday, and it was not until the beginning of the following week that the outcome of the voting was made officially public. In both institutions , the US has finally mustered a bare quorum -- said to be only one or two over the needed 71 in the IMF.

The last-minute arrival of some votes is seen within the institutions as reflecting the desperation with which the US used up political capital to get its way.

Saudi Arabia challenged the voting within the IMF on the grounds of irregularities -- including what some Arabs see as sharp practice and equivocal legal rulings to make sure that the quorum was obtained. But the built-in pro-US majority has beat back the challenge.

So, the US will have its way, and there will be no PLO observer at next week's meeting.

The whole wrangle has left a bitter taste in the mouths of the Saudis and other nonindustrialized members of both institutions.

It remains to be seen just how far the confidence of the Saudis and other Arabs in the World Bank and IMF has been shaken -- whether, for example, they will want to channel part of their surplus oil income into these institutions any longer.

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