World Economy Hailed at Madrid Finance Meeting
MADRID — ECONOMICALLY, the world has taken on a rosy glow.
``This is a great time to be secretary of the treasury,'' Lloyd Bentsen said Saturday after a session of the finance ministers of the Group of Seven industrial democracies in Madrid. The Group of Seven includes the United States, Germany, Japan, Britain, France, Italy, and Canada.
Michel Camdessus, managing director of the International Monetary Fund (IMF), told top financial officials from its 179 member nations that he hasn't seen a global economic situation this good, with such favorable prospects for inflation, since the mid-1980s.
Speaking Sunday to the policymaking Interim Committee of the IMF, Mr. Bentsen described an upturn ``which has matured in the United States, continues strongly in Canada and the United Kingdom, appears solidly under way now in Europe, and is spreading to Japan.''
Yasushi Mieno, governor of the Bank of Japan, told the same group that in Japan, ``recovery of domestic demand is now in progress, and we see more encouraging factors spreading in the economy.'' He said output in Japan in the first half of this year was above output in the second half of 1993 and that a $60 billion tax cut was lifting consumption.
Theo Waigel, Germany's minister of finance, said his country's real gross domestic product - the output of goods and services - will rise 2.5 percent this year. ``Developments in 1995, too, could be better than the government has hitherto expected, with real growth of 3 percent now appearing possible.''
``The growth of the UK economy was becoming so strong that, last month, I judged it right to raise UK interest rates,'' noted Kenneth Clarke, Britain's chancellor of the exchequer.
These officials have gathered for the joint annual meeting of the IMF and the World Bank that opens today and runs into Thursday. Most decisions, however, are negotiated at meetings of various groups in the days preceding the annual meeting.
One issue that has caused a major commotion and perhaps signified a historic power shift within the fund was a proposed new issue of Special Drawing Rights (SDRs), a paper asset created by the IMF and held in the international monetary reserves of member nations. Governments can use SDRs to pay bills due another nation. The value of the SDRs being discussed, about $20 billion to $30 billion worth, would have little impact on the world economy. It would be a ripple on the pond, one IMF official notes.
Yet the issue kept finance ministers and central bankers from the 22 member nations of the Interim Committee meeting into the evening Sunday, delaying their arrival at a reception in Madrid's convention center. Meeting again afterward, they failed to reach an agreement. It was an unprecedented instance of the developing countries, led by India, blocking a proposal of the Group of Seven.
THE German members were opposed to a general issue of SDRs, which would go to all members of the IMF according to their share of ownership in the fund. They said an increase in world liquidity was not needed and would be a bad inflationary precedent. They added that they were not opposed to a smaller, special issue of SDRs for 37 nations that had not received any in the last distribution more than a decade ago, because they were not IMF members. These include former Soviet Union countries. A boost in the reserves of these countries through SDRs might mean fewer calls seeking loans from Germany and other industrial democracies.
Developing countries, however, relished the prospect of free reserves and insisted on a general SDR issue. They linked the SDR issue with a plan to enlarge access to the Systemic Transition Facility (STF), a special fund that is used to make loans to ex-communist countries making the transition to market economies. The Group of Seven supports this change. The STF will expire at the end of this year if an extension is not approved.
Both the SDR and STF proposals require 85 percent of the vote in order to pass. The developing countries have more than 15 percent of the vote and the Group of Seven, which had agreed on a limited, special issue of SDRs, has only 45 percent. Interim Committee chairman Philippe Maystadt, Belgium's minister of finance, was instructed to conduct ``further consultations'' on the two proposals.
The Interim Committee did agree to increase the amount that nations can borrow from the fund should they face an international payments crisis. When approved by the IMF's executive board, a country will be able to borrow up to at least 85 percent of its quota in the fund for each of three years, up from 68 percent presently. Since the fund's total of quotas amounts to $220 billion, such a change could have substantial economic meaning.