Treasury Secretary W. Michael Blumenthal predicted yesterday that the U.S. trade deficit, which hit a near record $2.67 billion in August, might run as much as $25 to $30 billion this year, with a resultant deficit on current account of $16 to $20 billion.
The current account balance is judged the best overall indicator of one country's financial position vis-a-vis the rest of the world. It includes flows of money from investments as well as the balance of trade. Because of substantial earnings from abroad, the U.S. current account balance recently has tended to run about $10 billion less than the trade balance.
In a press conference preceding his address to the annual joint meeting of the World Bank and the International Monetary Fund, Blumenthal said the U.S. is determined to "correct" the current account deficit and other "serious problems."
But he said that the U.S. is not concerned that the dollar is threatened by the deficit, because "the U.S. economy is strong and is growing because it is as strong or stronger than any other economy in the world. There is a great deal of capital coming in to this country."
He predicted in his address that the U.S. inflation rate would decline to less than 5 per cent in the second half of this year from 8 per cent in the first half.
But a day after President Carter forecast a 6 per cent increase in the real gross national product level for fourth quarter over the same quarter of 1976, Blumenthal appeared to shade that target by referring to a prospect of "over 5.5 per cent."
To the condiderable displeasure of IMF and bank officials, Blumenthal raised the question in his address to the joint session of the salary level at both institutions, calling for an "overhaul" that would apply "Restraint." He also gently introduced the subject of human rights, saying the U.S. had no intention of "imposing our views."
Sensitive to the mounting pressure on countries as powerful as his own to expand more rapidly, German Minister of Finance Hans Apel said that the program just announced would boost the German growth rate to 4.5 per cent in 1978. But he warned that a few countries alone could not carry the burden of stimulating world-wide recovery.
British Chancellor of the Exchequer Denis Healey, endorsing the general sense of the meetings that there should be more rapid economic growth, said that England's improved position would enable it "To begin considering" a "modest (expansionry) contribution of our own." U.S. officials privately say they are not so sure the time is ripe for reflation in Britain.
Meanwhile, with the notable exception of France, major countries swung into Irine yesterday behind a major expansion of the resources of the World Bank and the IMF.
Although French Minister of Economy Robert Boulin joined the others in endorsing a boost in the money-lending potential of the IMF, he withheld approval now of an increase in the general capital of the bank.
With the French the only serious hold-out now that the U.S. has come around to support the proposal, expansion of a bank's capital is considered a sure thing, with the exact dimensions to be settled next year.
Boulin later told reporters that France has no reservation in principle to a capital increase, but thought it not "prudent" to say at this stage "when it should be and in what amounts."
Healey called for "roughly doubling" the World Bank's capital, which now is about $40 billion, including $8.5 billion in a "selective" increase approved last year. World Bank president Robert McNamara's original proposal - never revised - was to increase the bank's permanent capital from about $30 to 60 billion.
Blumenthal's and Apel's endorsements were couched in more limited terms. The U.S. secretary said that to assure economic growth in the developing world, "We are prepared to begin formal negotiations . . . leading to a general increase in (World Bank) capital." Apel cautioned that the targets for the increase should be in line with "a moderate real growth of the bank's operations." He suggested that the bank's goal for annual lending increases should be about the same as the real rate of economic growth in the industrial countries.
The actual decision on the size of the seventh IMF general quota increase - national currency put on deposit with the IMF - will not be made at this meeting, but at the Interim Committee meeting in Acapulco, Mexico, in March 1978. A country's quota determines its eventual borrowing rights in other currencies from the IMF.
The IMF staff has supported a 100 per cent increase in quotas - from about $45 to $90 billion. No one went that far yesterday, and Apel warned against an increase so big that it would be inflationary.
The German minister offered a "new idea" - that instead of distributing new IMF quotas equally among the four "tranches" (level of borrowing rights), the IMF should tie a greater share to those borrowings requiring stricter conditionality.
Healey, on the other hand, warned that conditionality must be flexible, and said it would be "no good" to boost the funds quotas "if those who need them most are unable to accept the conditions for their use."
The U.S. did not take a position on this question, but Blumenthal did argue that the IMF should use both the special $10 billion line of credit in the Witteveen Facility and new quotas "to foster necessary adjustment . . . (which) will in some cases require a longer period of time."
The U.S. has not made a decision on how big an IMF quota increase it desires to approve. But like France, it wants to keep theincrease "equi-proportional" so that its controlling share of roughly 20 per cent will not be reduced.