THE ECONOMY
When the books don't add up
JOCK BRUCE GARDYNE
The world is out of joint. As the commercial bankers, central bankers and finance ministers of the non-communist globe descend on Washington this weekend for the strenuous round of cock- tail parties and dinners which constitute the essence of the annual meeting of 'the Fund and Bank', the apparatchiks of the International Monetary Fund have served notice on them that the current account imbalances of the three dominant partici- pants, the US, Japan and Federal Ger- many, have reached 'unsustainable levels'.
The books must balance: water finds its own level. Only, according to the IMF's own calculations, they don't, and it doesn't. Over the past nine' years its members ran a collective trade. deficit. In 1980 it was a modest $30,000 million. In 1982 it reached $109,500 million, In other years it fell somewhere between the two: last year it was $65,000 million. It is theoretically possible that Switzerland and the communist bloc, which don't belong, were running massive surpluses. But it didn't feel that way to them, or anyone else. The IMF cheerfully concludes that it's probably due to the fiddling of portfolio investments and such items as governments miscalculating what it costs them to sustain the Rhine army and the Contra rebels. It assures us that this embarrassing black hole in world trade statistics does not substan- tially alter the fact that the Americans are earning a great deal too little on their international transactions, and the Ger- mans and the Japanese a great deal too much. But as Dorothy Parker remarked when they brought her the news of the demise of Calvin Coolidge, 'How could they tell?'
Fortunately the assembled finance ministers and central bankers will lose no sleep over such statistical anomalies. The Fund and Bank jamboree is an occasion for moralising, and the potentates will not be denied their chance to lecture each other. The whipping boy this year is clearly going to be the Federal Republic. It makes a change. In recent years the Japanese have been in the ducking-stool each autumn. But with exports falling — at any rate in yen and volume terms — and the Japanese domestic economy on course for three and a half per cent growth this year, much of it going to import penetration, Japan is reckoned to be making at least a start on its duties toward the international brother- hood. Not so Germany, where the domes- tic economy is sluggish, and the trade surplus grows exponentially.
As a target for collective righteousness Germany has much to commend it. For one thing the single-minded assault on Japan's alleged trading practices has been a bit lop-sided, in that many of the crimes for which Tokyo was arraigned were repli- cated by the Federal Republic. It is true that would-be salesmen of merchandise do not encounter those intangible culture- blocks of which would-be exporters to Japan complain. But innocents who try to muscle in on Germany's financial services — even from within the European Com- munity — are swiftly shown the door. Besides, Japan's real iniquity, in the eyes of the Group of Five heavy mob at the IMF (i.e. the US, Germany, France, the UK and Japan, of course) was simply that it sold too much abroad, and bought too little at home. So does Germany. The second virtue of Germany as a target of reproach is that Bonn, unlike Tokyo, can be guaran- teed to treat the counsel of more profligate governments with all the respect that it deserves. In other words, it will go its own sweet way regardless, Perhaps its pair- group might play the Barclaycard, promis- ing the German finance minister, Herr Stoltenberg, a pack of bourbon, Harris tweed and truffles for every extra $1,000 borrowed by his fellow-citizens on plastic.
Be that as it may, our own Chancellor sets sail for Washington with his briefcase packed with wise saws and modern in- stances for all occasions. He expects to be received as the school swot, effortlessly achieving: the wonder of the Western world, representing the fastest-growing economy in the northern hemisphere, where inflation remains modest, the mar- ket is open, taxes fall, and the Budget deficit fades like the Cheshire cat. Let's hope he doesn't overdo it. The prize exhibit in his travel-pack is his scheme to sanitise the debts of sub-Saharan Africa. His credentials may be excellent, and his advocacy will do him no harm at all at home or in the Third World. But the Germans and Americans are ganged up against him. They reckon — and they must surely be right — that a cut in interest charges for the likes of Nigeria would only give ideas to the Argentinians and Brazil- ians. And since the sub-Saharans' debts are mostly owed to northern hemisphere gov- ernments which, unlike the commercial banking lenders to Latin America and elsewhere, do not have to persevere with the pretence that their loan-books are `performing', what purpose would it serve?
Next out of the hamper is the call for a signal reaffirmation of. the Louvre Accord (the announcement from the heavy mob eight months ago that their respective national currencies had achieved a condi- tion of relative bliss, which they would exert themselves to preserve). This should go down better. The Germans and the Japanese are terrified lest the US dollar goes into another tailspin, and the French are forever hankering after a new Bretton Woods system which, they believe, would make it less wearisome for them to keep in step with the German deutschemark. The US Treasury secretary, Jim Baker, and the new chairman of the Fed, Mr Alan Green- span, may be more sceptical.
Unlike the others, they have a restive Congress to contend with, and holding out the possibility of some further depreciation in the dollar is surely the most painless way to head off the protectionists. Particularly since Mr Lawson and the Japanese are standing ready to buy anybody's unwanted dollars to stop things getting out of hand. So while the Brits, the Japs, and the Germans will trumpet the virtues and the sustainability of the Louvre Accord fortis- simo, the Americans will be using mutes.
Then there are those other debts: the ones from below the Rio Grande. With the Argentinians threatening to follow the Brazilians into open default upon their borrowings from the commercial banks the Cassandras are once more talking of disas- ter, But the world has moved on. The commercial banks have contrived to pass the cost of their dicy sovereign loans on to their shareholders and domestic custom- ers, and the spectre of default isn't what it was.
So once again it looks as though the Fund and Bank circus will be long on moralising, and short on action. There will be loud denunciations from the chattering classes of one more missed opportunity to get the world economy moving, and no doubt dire predictions of the slump around the corner for good measure. And then, with luck, the world will once again sur- prise us by performing rather better than the officials of the IMF have told us that it has any right to do.
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