I.M.F. WEAK COMPROMISE AT VIENNA MEETING

Press, Volume C, Issue 29638, 7 October 1961, Page 10

I.M.F. WEAK COMPROMISE AT VIENNA MEETING

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(From tM *ficonomtet H Intelligence Unit)

London, September 25. In spite of official attempts to put a brave face on it, the meeting of the International Monetary Fund in Vienna in the third week of September, to which so much hope had been attached, was disappointing and inconclusive. It was not, admittedly, an outright failure. Dr . Per Jacobsson, managing director and driving force of the fund, was able to state at the closing session that all the countries concerned had “expressed a positive interest in the fund for making borrowing arrangements’’ to stock up with the currencies that it needed: and. as Dr. Jacobsson had intended, this agreement in principle will now enable the executive directors of the fund (who sit permanently in Washington as representatives of the member governments) to work out a detailed plan. The aim is to get the plan -formulated by mld-December. The next stage would be for the countries that need to do so to pass the necessary legislation allowing them to make short term loans to the fund. There has been no public mention yet of amounts, but the broad range of figures under discussion is widely known. 'Die total would be 5-6 billion dollars, with perhaps 2 billion dollars from the United States, rather more than this from the Common Market countries, 1 billion dollars or slightly less from Britain, and small additional amounts from countries such as Sweden, Canada, Japan and Austria. Nature of Drawing* These arrangements, it is important to note, relate not to actual credits but to lines of credit, and it is the essence of the scheme that money would be drawn by the fund only from countries whose reserves were increasing, and that if the lending countries themselves started losing reserves their credits to the fund would be immediately repaid. To the limited degree set by the total of the proposed credit lines, therefore, what is proposed could be in effect an international clearing, with the surplus countries financing the deficits of the decifit countries. This is what Britain has long had in mind, from the original negotiations at Bretton Woods onward, and more recently—as the dollar itself has come under attack—it has been pressed by the United States Administration.

At the Vienna meeting, the strong United States team, which included the Secretary of the Treasury (Mr Dillon), his able deputy (Mr Robert Roosa), and the chairman of the Federal Reserve (Mr William Martin), worked very hard to gel the plan accepted. The United Kingdom delegation. while it was completely in sympathy with American aims, kept very much in the background, doubtless because it feared that in this particular business its support might be embarrassing. For the most important critics of the scheme, the French, are partly moved by the conviction that the International Monetary Fund is an AngloSaxon show, run by the Americans and the British for Anglo-American benefit. French Attitude Earlier in the year the French expressed their lack of interest in the scheme quite strongly. In Vienna they accepted it—en principle —which as has been rightly pointed out cannot be translated accurately into “in principle.” Mr Baumgartner, the able but rather forbidding French Minister of Finance, made no secret of his reservations and conditions. In the first place he sees qualifications in the role of international credit at all •*-the first job is for countries to take the right measures internally and above all to stop inflation. Secondly he points to the facilities outside toe International Monetary Fund—co-operation among European central bankers, and the new Organisation for Economic Co-operation and Development, which has its headquarters in Paris. Then again, in so far as he is prepared to grant additional facilities to the 1.M.F., he wants to separate the “normal needs” for the fund from “exceptional needs which might arise from capital movements.” It is only for the latter—and specifi-

cally for those capital movements that are likely to be reversed fairly quickly and do not therefore underlie a basically weak position—that he approves a strengthening of the fund’s resources. Fourthly, Mr Baumgartner insista that the lending countries themselves shall be the judges of whether these exceptional conditions have arisen. In this context “consultations” between the fund and the lending countries are not enough; the lenders themselves are to decide. France was broadly sup. ported in this view by Holland, in a noteworthy speech from Dr. Holtrop. governor of the Netherlands Bank. Germany and Italy had fewer reservations, and they are also likely to grant special bilateral credits to advance of the main scheme But the upshot of it all seems likely to be that while the Jacobsson plan may still go through in form, the effect of the Franco-Dutch reservations will be to limit its re. inforcement of the fund itself. What seems likely to emerge is not so much a stronger I.M.F. as a second line of possible stabilisation credits, which may or may not be activated according to the decision of the lend, ing countries. Blow te Confidence This issue of the callability of the credits is of the first importance. For the whole object of the exercise is to quash any doubts that, in the event of a speculative run on a major currency, the central banks and monetary authorities may be unable to mobi. lise sufficient resources to hold the line. If the international credits are to be hedged by conditions and uncertainties the they will lose much of their reassuring effect. Moreover, the spectacle of the finance ministers of the Atlantic Community so much at odds in Vienna has hardly enhanced confidence ’ in the likelihood of a meeting of minds and bold cooperation in the event of another exchange crisis. In this sense therefore, notwithstanding the agreement en principe, the Vienna meeting may have done positive harm. It is too soon to tell. There is still time. The French may realise what is at stake. If the dollar comes under attack and the financial authorities of the West undertake insufficient concerted action to defend it, the consequences will be far and wide, and the franc will enjoy no privileged immunity any more than it did after the devaluations of the M’s In his one statement of note Mr Selwyn Lloyd. Britain's Chancellor of the Exchequer, sounded the right warning:

“Let us be in no doubt that such arrangements are a matter of fundamental importance. Without them, as I believe, it will not be possible to ensure the effective functioning of the present system cf international payments.”