In the City
The poor, the rich and the IMF
Nicholas Davenport
The most boring assignment for a financial writer would be to attend an annual meeting of the International Monetary Fund. Fortunately I have so far escaped. So bored were the finance ministers and high officials and bankers attending the IMF and World Bank meeting in Washington last week that they worked themselves up into a state of high optimism — I impute no alcoholic stimulus.— and agreed to all the forward proposals — increasing the resources (quotas) of the IMF by 50 percent, arranging a new allocation of SDRs and replenishing the facilities of the Bank's subsidiary, the International Development Association, which makes easy concessionary loans. And they departed saying that the worst of the world depression had been seen and that while the US may now be slowing down, faster expansion elsewhere was in sight and a more balanced growth. I fear the City was unimpressed and most markets remained in the doldrums.
To talk of 'more balanced world growth' was surely arrant nonsense when the chairman of the World Bank, Mr Robert McNamara, kept repeating the 'shocking conclusion' of his 'World Development Report' — that 600 million people in the developing countries will remain trapped in absolute poverty by the end of the century. 'Trapped in poverty' means malnutrition, illiteracy, disease, high infant mortality, low life expectancy — far beneath, said Mr McNamara, any reasonable definition of human decency. Are the developed capitalist or the developed communist countries going to come to their rescue? Their situation is surely explosive.
What lessens the aid coming from the developed capitalist countries is the fact that the recipients have to pay interest and amortisation on their loans — financial conventions which the communist powers usually ignore. This does not apply to the concessionarY loans of the International Development Association but these are a small percentage of the total. In a table given by Mr McNamara it appears that the debt service of loans made to the poorest nations in Africa and Asia — those with a gross national product per person in 1976 of $250 and below — absorbed 12.7 per cent of their exports last year and will absorb 17.4 per cent in 1980. In most cases their debt service rises at a faster rate than their exports. Some of the poorest countries are already insolvent and the financing capitalist countries have had to extend the period of their loans or write them off. It was good to hear Mr Healey say in his speech at the Washington meeting that the UK had already converted its past aid to seventeen of the poorest countries totalling some £900 million from loans to grants. The external debt of the developing countries, which do not produce oil, he said, had increased more than three times — from $32 billion to $110 billion — between 1967 and 1976. He wisely did not refer to the fact that their failure to service a large part of this colossal debt had put a number of New York banks into near trouble.
Another obstacle to aid coming from the advanced capitalist countries is the protectionist measures taken by them against some of the exports — particularly textiles and footwear of the developing countries. Australia, Canada, France, the UK, the US and Sweden have imposed new quotas — called 'orderly marketing arrangements' — on the developing countries' exports of footwear while the EEC has reduced 1978 quotas beneath 1976 levels on some developing countries' exports of clothing and textiles. The UK has imposed quotas on television sets from two developing countries and similar action is threatened in the US. This trend towards protectionism throughout the industrialised nations is, according to Mr McNamara, gathering momentum. It is an absurd and dangerous trend because two years ago the indus trialised nations exported $123 billion of manufactures to the developing countries and imported from them only $26 billion of their manufactures. So excessive protectionism is not only unfair; it is selfdefeating. It tends to keep weak or inefficient industries alive in the developed countries rather than shift resources into more competitive ones.
There is something indecent in the finance ministers and bankers of the rich developed countries meeting annually to discuss their financial abracadabra, their floating exchange rates and their IMF quotas and SDRs, while the poor developing countries are struggling to keep their people just alive, solvent and independent. But one must admit that this year they had some awkward financial problems to discuss among themselves. After the collapse of the old Bretton Woods system of fixed exchange rates the floating exchange rates have created new problems and imbalances. They have been too violent; they have left the dollar too weak, the Swiss franc too strong, the Japanese yen not high enough to bring down the Japanese payments surplus below the level o. f the OPEC oil surplus. As Mr Healey said in his IMF speech: 'I do not detect today the same confidence in the floating exchange regime as was fashionable two years ago'. We cannot go back to the old order, he said, but we cannot improve the present situation unless governments work together to produce 'structural changes in the world economy'. These are not problems, he added, which can be left to the blind sway of market forces alone. But what he had in his great mind he did not unveil.
It is reported that Mr Healey arrived at the meeting in a towering rage because he had Just learned of the secret accord of the French and the Germans on the formation of a European monetary bloc. It seems to me that if a world monetary system is in ruins and is not likely to be put together again in the near future there is no reason why a European monetary bloc should not be set Up to avoid the internal imbalances caused by violently fluctuating exchange rates. But there is the awkward problem of whether the individual currencies should be linked to a composite unit or basket of currencies or Whether they should have a fixed range in terms of each of the others, which is called the parity grid'. The French and the Germans are in favour of the parity grid but Mr Healey is not. The 'parity grid' would open up the way for the single European currency unit — the ECU — which the EEC Commission president, Mr Roy Jenkins, has been advocating for some time. What Mr Healey IS afraid of is being committed to an overvalued rate for sterling, based on our temporary oil payments surplus, which would make our exports unprofitable. But surely this could be changed by agreement. He may also be suspicious of the French and the Germans. But some of us are also suspicious of the dollar and the Americans. This EEC currency move is not to be turned down lightheartedly or politically.
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