Poor nations call for more aid

Press, 11 February 1983, Page 6

Poor nations call for more aid

NZPA Washington Developing countries say that their external debt problems and payments difficulties are bound to become still more intractable, failing co-operative action to overcome the world economic recession and the slump in international trade.

Their warning yesterday came ahead of a crucial meeting of the interim committee of the 146-nation International Monetary Fund which will seek to strengthen the Fund’s resources to enable it to continue providing effective support for crisisstricken countries.

Participants in this week’s talks at I.M.F. headquarters consider this as vital for international financial stability.

Finance Ministers of developing countries of the “Group of 24” made it clear that they foresaw a “bleak” future for Africa, Asia, and Latin America unless there was an early recovery through more expansive economic policies in the industrial world, improved demand and access for Third World exports, and increased flows of financial resources and aid.

“Unless this recovery comes, the debt problem will deepen,” the Egyptian chairman of the “Group of 24,” Dr Muhammad Hamed told a news conference after a meeting of the panel attended by the I.M.F.’s managing director, Mr Jacques de Larosiere, the World Bank president, Mr Alden W. “Tom” Clausen, and representatives of other international bodies. In a statement the Ministers strongly urged “at least a doubling” of I.M.F. quotas

— which determine member countries’ contributions to the Fund, access to its resources and voting powers — to ensure that quotas would remain the principal source of I.M.F. funding and that adequate resources would be on hand to meet the financing requirements of the coming years.

The I.M.F.’s current capitalisation stands at 61,000 million special drawing rights and the interim committee will probably decide in favour of a 50 per cent increase, as part of a plan to strengthen the 1.M.F., which has. been hurriedly hammered out since Mexico’s debt crisis six months ago. Mr Hamed, who is Egypt's Finance Minister, said that an increase of 50 per cent would not be enough. It would hamper economic recovery because it would not provide the liquidity needed to finance trade and financial transactions.

As for the other part of the plan the conversion and extention of 10 main industrial nations’ general arrangements to borrow into a 17,000 million special drawing rights emergency fund which

the I.M.F. would be able to draw on in “exceptional" situations, the group saw it as “no alternative” to a big quota increase. Several European countries, including France, Italy. Belgium, and the northern European countries, are sympathetic to the idea that world economic recovery requires a concerted effort by industrial nations to reactivate world trade.

They agree that this would generate resources that would help counter the threat to financial stability that is implicit in the huge Third World debt. But the United States Treasury Secretary, Mr Donald Regan, said yesterday that expansionist policies could rekindle inflation. I.M.F. staff also appear to be favouring a cautious approach. But sources in Washington are referring to a “differentiated” assessment of the opportunities of individual countries, depending on the progress they have made towards controlling inflation.

A ranking European official said that there had been “contradictory signals"

from Washington in the last few weeks about the need for some kind of action to underpin recovery. But the French Finance Minister. Mr Jacques Delors, said after talks with Mr de Larosierer yesterday that the "principal objective" of the I.M.F. talks was to win agreement on stronger I.M.F. resources.

They voiced concern about the possibility that working of the expanded general agreement to borrow “could adversely affect the independence and decisionmaking authority” of the I.M.F. and that “preconditions for activation” could make access to such funds “highly uncertain.” They therefore insisted that there was a stronger case than before to launch a new distribution of special drawing rights, the I.M.F.’s international reserve asset, which should be in the range of 12,000 million a year up to 1985 to bring the ratio of drawing rights to world reserves to the level recorded 10 years ago. They said that this addition to liquidity would help recovery but would not be inflationary.