Prophets of doom at finance meeting

Press, Volume CXIV, Issue 33665, 15 October 1974, Page 17

Prophets of doom at finance meeting

(By

MICHAEL COOLING,

N.Z.P.A.-Reuter correspondent)

WASHINGTON. I An atmosphere of almost unrelieved gloom pervaded the joint annual meeting of the International Monetary! Fund and World Bank held in Washington from September 3 to October 4. While the 126 countries represented at the session suggested there was some light at the end of the tunnel and called for international co-operation of a quality rarely achieved in the past, the corridor discussions in the rambling Sheraton Park hotel provided a picture of a global economy stumbling towards a depression leading to political change and general economic unrest. Advancing inflation rates, falling output in the principal industrial economies and the special problems caused by the 400 per cent increase in oil prices over the last year were responsible for the predominance of prophets of doom at the meeting of finance Ministers from the industrialised couni tries and the developing ! nations.

Main question The fundamental question was whether there was the political will to deal with these economic problems. The final answer from the week-long deliberations was obtuse. On the one hand there was a record of achievement. The Ministers agreed to set up a new, and powerful,' “interim committee” of the I.M.F. In the words of its chairman, the Canadian Finance Minister (Mr John Turner), the new committee would become the fund’s political focus.

He told a news confer-1 ence, “the creation of this! committee is an opportunity to bring political direction; and support to the fund . . . the committee will enable the I.M.F. to play an even greater role in world econ-, omic policy-making. “All the members appear to be ready to bring to bear the political will needed,” he; said. More potent The new committee will! oversee the international' currency system in the years, ahead and, when its existence; is formally ratified by member governments after changes in the I.M.F.’s rules,] [will become a more potent: force in dealing with sudden; (disturbances of the world’s;

money markets and of its commercial banking system. A new' development committee was formed in association w'ith both the I.M.F. and the World Bank—the biggest international dispenser of aid to the developing countries. That committee will primarily look at the problem of transferring aid from the world’s richest countries to the poorer nations. It will co-ordinate aid to the developing countries by taking account of the operations of the regional, governmentally supported, banks such as the Asian Development Bank which provides funds to countries in Asia, and of the bilateral aid provided by industrial countries to the less developed world.

Recycling Additionally, at the end of the annual session the I.M.F.’s managing director (Dr H. Johannes Witteveen) noted that the member countries had given the executive board of the fund — a group of 20 responsible for the dav-to-day operations of the I.M.F. — a mandate to explore the need for “recycling.” “Recycling” has been the. (word of the moment at this (year’s annual meeting of the two organisations. It simply means the taking up by the world’s central banks, international financial organisations, or (commercial banta of the huge amounts of dollars pouring into the oil exporting countries’ treasuries and Itransferring them to those nations which are finding I difficulties in meeting their increased oil and food bills. I Dr Witteveen said that he land his executive board ; would analyse this problem (and would report back to (the interim committee on January 15 and 16, 1975, ■when it meets for the second time in Washington.

Huge assets The World Bank has estimated that by 1985 the oil exporting countries will hold SUSI,2OO,OOOm in assets, either of other countries’ currencies or of real estate and company stocks and bonds, or both. Many finance Ministers have observed that such a huge transfer of resources has never been seen before, except in times of war. Dr Witteveen also noted another point of consensus. “Efforts to overcome inflation will require courage and determination on the part of national authorities in pursuing a well-balanced and internationally consistent set of policies”

Governments had shown at the meeting a full awareness of the fact that to fight inflation meant certain risks. But they had ruled out severe recession and huge unemployment as a method of controlling inflation. All of this — the formation of the two committees, the need to study “recycling” and the desire of governments to steer an even course between recession and rampant inflation — left some delegates to the 1.M.F.World Bank conference feeling reasonably optimistic that the political will existed Unease But beneath this surface of optimism was a pervasive unease. “I don’t believe governments will act until there is a crisis,” one senior European central banker said. “We are groping for solutions in an uncertain world and by the time political leaders act it might be too late.” His view was reflected by other senior delegates at the I.M.F. session. During the meeting the developing countries beheld the unedifying spectacle for the first time of the principal industrialised countries attempting to grapple with the problems that have been all too familiar to the poorer nations for the last 30 years. Minister after Minister i noted the impact of inflation, falling output and rising oil prices on their economies. They underlined ' their respective problems in the knowledge they could only be solved through the willingness of the major oil exporting countries to bale them out by advancing them funds to meet their oil import bills or by lowering the price of oil.

There was a certain irony, in this for the developing countries. As the World Bank pre.fi-. dent (Mr Robert McNamara) noted in his opening address to the annual meeting of the two agencies, a fall in the standard of living of the peoples of the industrialised; countries as a result of the] economic problems they’ faced was a relatively minor' .event. For the poorest countrie.s, i a reduction in the standard of living of the citizens of the poorest countries meant death. Put in those terms, the ; comparison was brutal and ; sharp. ( However, officials representing America’s major trading partners indicated , that they believed the United States attempta to! ! get the price of oil down were unrealistic and were guided by the desire of the; Ford Administration not to 1 become involved in the political consequences of having ’ to hold down spending, both private and public, in the ] United States. For the Arab oil exporting , countries, whose senior Minj isters were absent from the . meeting because of the month-long Muslim religious; observance, the deliberations; ( were archaic because they! 1 did not take account of their . enhanced status. They do not have a voting ■ status in the I.M.F. which; .reflects their new-found i economic wealth. Unfortunately, there was little evidence that recog- • nition of their new posi- ' tion, which is not yet firmly • reflected in their increased 1 participation in world agencies, would lead to the 1 type of co-operation needed • to prevent the world slumpring into a. financial crisis reminiscent of the 19305.