THE PRESS THURSDAY, NOVEMBER 25, 1982. A needed $50 billion

Press, 25 November 1982, Page 20

THE PRESS THURSDAY, NOVEMBER 25, 1982. A needed $50 billion

The sum of SUSSO billion is a huge amount of money by most standards. This is the amount by which the resources of the International Monetary Fund have been increased. The I.M.F.’s resources amounted to $U566.5 billion; these resources have been increased by 75 per cent. Measured against the foreign debt of Mexico, which amounts to $BO billion, and which it cannot pay and against the foreign debt of Argentina, Brazil and Venezuela of $l4O billion which, it is widely believed, they cannot pay, it seems almost that the $5O billion is a minor sum. If the total foreign indebtedness of the developing world is taken into account, the $5O billion is one-tenth. The servicing of debts and the repayment of maturing debts are huge problems for a number of countries over the next few years. The Prime Minister, Mr Muldoon, said recently that during 1982 interest payments and maturing bank loans in Venezuela amount, to $19.8 billion, which is 95 per cent of export income. In Brazil, he said, the interest payments and maturing bank loans amount to $29.8 billion, which is 105 per cent of export income. The $5O billion extra that the I.M.F. now has will undoubtedly help. If a number of countries borrow from the 1.M.F., they should be able at least to pay the interest. This should solve their immediate problem and it should also reduce the problems of the banks that lent the countries the money. The I.M.F. tends to be wary of saving the skins of bankers who lent money in ways that have proved to be unwise. The I.M.F. is unlikely to see the banks collect their money and the developing countries owe the money to the I.M.F. instead. The increased amount that the I.M.F. has for lending should still assuage the fears of the private bankers and set them in a mood to reschedule the debts of a number of countries. At a pinch, the world’s financial. system might stagger on for a period because of the extra $5O billion available through the I.M.F.

The availability of a further $5O billion is far from the reform of the world monetary system sought by Mr Muldoon in his call for a new conference of the type which set up the I.M.F. at Bretton Woods in 1944. The increase in the amount of money .is just one of the aspects that Mr Muldoon has. been urging on Commonwealth Finance Ministers, the

Commonwealth Heads of Government regional meeting, and on the annual meetings of the I.M.F. and the World Bank. In fact, the increase may be viewed as an attempt to prevent the reform of the I.M.F. in the radical way that the Prime Minister has been advocating. The existing financial institution is. being boosted, on the understanding, it seems, that the traditional loan conditions are imposed. Part of Mr Muldoon’s argument has been that the conditions for loans should be changed. To some extent the conditions imposed by the I.M.F. on its borrowers have been responsible for the fact that developing countries have turned to borrowing from the private sector banks. The I.M.F. considers that its loans are to help a country out of its balance-of-payments difficulties. It has therefore insisted that the borrowing country adopts monetary policies which the I.M.F. hopes will cure the balance-of-payments problem. These measures are almost always unpopular with the people of the country on which they are imposed.

Mexico will be a test case. The I.M.F. has already been engaged in rescuing Mexico and is likely to be embroiled still more. The problem is not Mexico’s alone. Nine of the biggest banks in the United States have lent Mexico 40 per cent of the equivalent of their capital and reserves. Another problem exists — a political one for the United States in particular. If the I.M.F. has its way and certain conditions are imposed on Mexico, many Mexicans may take the path that other Mexicans have trodden and cross the border illegally into the United States. The numbers leaving Mexico may be so great that they would change the demographic composition of the south of the United States, adding to the various problems, including unemployment, which already afflict the area. The United States has been the country most against any increase in the amount ,of jnoney that the I.M.F. applies to lending. Whether the plight of its neighbour, Mexico/ and the implications that this would have for the United States, has caused the United States to change its mind has not been revealed. The 1.M.F., armed with its increase of $5O billion, is likely to be actively engaged in rescuing one country after another for the next few years. Loans will help; they will not be enough.