The 32nd joint annual sessions of the World Bank and International Monetary Fund ended yesterday with an optimistic appraisal by IMF Managing Director H. J. Witteveen of U.S. economic prospects, despite its persistent trade and current account deficits.
Witteveen told a press conference that the exchange rate of the dollar "has remained remarkably stable" because of large capital inflows (much of it from the surpluses of the oil producing countries.)
He predicted, in effect, that the U.S. trade deficit, estimated at $25- to $30 billion this year, would not cause a drop in the international value of the dollar so long as the capital flows continued and interest rates continued to be higher here than in some other industrial countries.
At the World Bank session, president Robert S. McNamara noted there was a strong consensus - including the U.S. - for a substantial general capital increase.
Bank officials talk hopefully of an increase that will permit a 10 per cent annual boost in the level of its lending, which would provide a real increment each year of about 5 per cent.
McNamara also launched a 15-member commission of private citizens headed by former German Chancellor Willy Brandt to explore ways of resolving the complicated issue of development aid to poor nations.
Like Witteveen, McNamara developed the theme of the total interdependence of the world economy. He said countries would have to avoid protectionist tendencies if the economic growth of the poor nations is allowed to accelerate.
Asked how long the U.S. trade deficit could continue at its current level, Witteveen said he hoped other countries would resume their economic growth, which would take some pressure off the United States.
If the deficit persists for some time, Witteveen said, "then the (exchange rate) will adjust. The fact that until now the rate has been so stable is an indication that the overall (ULS) balance of payments is in equilibrium."
Witteveen's assessment of the U.S. payments situation is that too much attention is being paid to the narrow trade figures and not enough to the broader overall balance of payments accounts.
Witteveen conceded that the world economy had been sufficiently "blown off course" in the last year to require a "correction of the steering wheel" toward more rapid growth.
That was the main focus of this annual meeting, compared with the last one in Manila, where the attention was on fighting inflation.
Witteveen insisted yesterday, as he has before, that the general strategy calling for strong nations to achieve higher growth, and weaker nations to reduce their balance of payments deficits, is unchanged. Inflation is not being ignored.
But rising unemployment has turned the minds of politicians and finance ministers alike to the need for higher growth. Witteveen advised the Interim Committee that in a closed session that "the pace of economic recovery is so slow that it is adversely affecting employment and foreign trade . . . while encouraging protectionism. This is a matter for serious concern."
Yesterday, Witteveen told reporters that slow worldwide recovery required policies that will achieve a reduction of unemployment, not only among countries like the U.S., West Germany and Japan, but in countries such as Britain where there is room for expansion.
The dramatic turn around in the British financial situation since the near-despair of last winter has been remarkable, but British economic growth is no more than 1 to 1.5 per cent and unemployment is high.
Witteveen noted that public sector borrowing in the U.K. could still grow, and not touch the ceiling to which Britain agreed as a condition for its $3.9 billion IMF loan.
Witteveen, who will retire next August, also said a consensus developed at the meetings this week for at least a 50 per cent increase in IMF quotas from the present approximate level of $45 billion. "The feeling is growing that even that may not be enough," he said.
A decision on quotas and the degree of conditionality for the Witteveen Facility will be among major topics for discussion at the next Interim Committee meeting in Mexico City, beginning next April 27.
Witteveen acknowledged that many developing countries expressed the feeling this week that fresh balance of payments aid promised them through larger quotas and the "Witteveen Facility" would not be adequate to meet their needs, or would require exceptional austerity.
Overand H. Padmore, Finance Minister of Trinidad and Teobago, speaking for six Caribbean nations, warned that a reduction in poor nations, current account deficits - widely hailed during the sessions - has been accomplished at the expense of higher unemployment in the poor nations.
Witteveen said he "strongly feels the (next) quota increase should be very large." But he said he thinks that the special facility will be adequate over the next 4 or 5 years and might not even be fully used. he reported yesterday a contribution of $257 Miillion by Nigeria, which brings the fund to $10.1 billion.
Witteveen turned aside a question whether he would advise his successor to propose IMF borrowings from the private market. He said that was "something for the future," but for the moment, the best course for a permanent increase in IMF lending potential was through increased member quotas.
Among those prominently mentioned as possible successor to Witteveen is French Treasury Director Jacques de Larosiere, who also is chairman of the deputies of the Group of Ten, and former Canadian Finance Minister John Turner. Several Latin American candidates have been mentioned, including the executive director for Brazil, Alexandre Kafka. This question is not likely to be decided for many months.