The United States, along with other nations, has agreed to raise in the $5.8 billion ceiling on World Bank lending imposed last year by the Ford administration, Treasury Under Secretary for Monetary Affairs Anthony Solomon said yesterday.
In his first interview since confirmation as the Treasury's principal official on international financial matters, Solomon indicated that the new era of cordial relations had been opened by the Carter administration with the bank and other international institutions.
He said that bank president Robert S. McNamara again would propose a major increase in the bank's authorized capital in fiscal 1978, "and we're prepared to consider it."
Solomon said that the World Bank executive board had voted to lift the $5.8 billion spending ceiling to $6.1 billion for fiscal year 1978, beginning July 1, 1977. "That seemed reasonable, and in fact I don't think it even compensated for the effects of inflation," Solomon said.
A World Bank source said that the $6.1 billion figure was adopted as "a planning assumption" and that rules relating to repayment terms and lending rates were not being changed yet.
Solomon rejected the view held by former Treasury Secretary William E. Simon that the bank was getting too big, and that McNamara was seeking to bank lending beyond a prudent point.
"We feel that the bank and IMF play key roles in this interdependent world economy we have, and that it is both necessary and desirable that their roles increase as the world economy continues to get more and more interdependent," he said.
The $5.8 billion ceiling and other restrictive conditions were the focus of a bitter dispute last fall between McNamara and Simon at the annual IMF meeting in Manila. Either the bank should be allowed to grow or the major powers should "let its usefuless decline," McNamara said at that time.
Solomon a former Assistant Secretary of State for Economic Affairs and a businessman, discussed the whole range of American international economic policy. He predicted that over the next few years, Mediterranean and Southern European countries may have more need for international assistance than some of the poorer countries of Africa and Asia.
Rising commodity prices and a good harvest in India had eased the burden somewhat on the less developed countries (LDCs) in 1976, he pointed out.
"They of course had to do a lot of borrowing," Solomon said. "But they did increase their (monetary) reserves by about $10 billion."
Solomon said that the basic determinant of American international financial priorities is that "we're living in a world of $45-billion-a-year OPEC surpluses. And you have to add to that $15 to $25 billion a year in current account surpluses run by some of the major industrial countries."
OPEC is the Organization of Petroleum Exporting Countries which enjoys a vast trade surplus keyed to oil prices raised five fold ove the level prevailing in 1973.
The mirror image of the OPEC surplus, combines with the industrial country surplus, is the need of all the other countries to finance a deficit of about $65 billion, Solomon said. Carter administratation officials have been keeping up a barrage of pressure on West Germany, Japan, Switzerland and the Netherlands to reduce their current account surpluses.
Solomon said he has been discussing with officials at the International Monetary Fund ways in which hardpressed countries could rely more on the fund and less on the private financial markets which had been supplying about 75 per cent of their borrowings in the past three years.
"There is some concern that the volume of lending through the private capital market has reached the limit of prudence, but I don't think that's true across the board," Solomon said.
The "couple of countries" that have borrowed as much as they should from banks "should now turn to international agencies, but the IMF (at this time) doesn't have enough resources," Solomon said.
Solomon said it is time "to activate the 'super tranche' authority given the IMF at Jamaica (in January 1976)." Currently, a country can borrow 145 per cent of its quota in the IMF. A super tranche would be permission to draw an even larger amount, but on extremely tough conditions.
It is not simply a matter of pouring additional money into the IMF, Solomon stressed. The American position is that weaker economies must accept "a longer-term strategy for adjustment than a painful attempt at a turnaround overnight."
Solomon would not identify which countries in Southern Europe he thought would be the main candidates for aid in the next few years. But clearly, Italy - now trying to complete a $500 million borrowing from the IMF - if one, and Portugal, Spain and Turkey might be others.
He also indicated that neither the IMF nor individual country contributors have yet fixed on the amount or the manner in which IMF resources will be increased.
IMF Managing Director H. J. Witteveen has returned recently from a trip to the Persian Gulf, during which he reportedly solicited contributions of 7 billion SDRs (about $8.3 billion) from OPEC countries, including 4 billion SDRs from Saudi Arabia. SDRs are special drawing rights, an IMF created asset worth about $1.16 each.
Under Witteveen's plan the 7 billion OPEC SDRs would be matched by an equal contribution from the industrial countries - about one-third each from the United States and West Germany.
This would be in addition to another major increase in IMF quotas, which also would boost total lending authority. But the supert-anche special fund being promoted by Witteveen could be created more quickly than quotas could be increased, and provide more of the kind of currencies in demand by borrowers.
Treasury officials are exploring various other ways of boosting the IMF resources, but with no sense of immediate urgency.