An American proposal to cut by 20 percent salaries paid by the World Bank and the International Monetary Fund to U.S. nationals, and salaries paid foreigners by 5 to 10 percent, has provided bitter dissent and growing hostility toward the Carter administration in those institutions.
In an unprecedented step, almost 400 U.S. citizens - virtually the entire American contingent at the IMF - delivered a letter to Treasury Secretary W. Michael Blumenthal over the weekend, protesting that his efforts to cut pay have lowered morale.
The letter appealed to Blumenthal to put behind what was labeled "partisan policy papers in the Treasury Department" and other criticisms that "have created the general feeling that the fund is working in a hostile setting."
The World Bank, IMF, and the Inter-American Development Bank, also affected by U.S. efforts to cut pay, are responsible for promoting international financial stability, especially among developing nations of the world. Their headquarters are in Washington.
No one contests the fact that salaries at these institutions are higher than comparable pay in the U.S. government, but there is serious dispute over the size of the gap and even how to measure it. Treasury officials say that even if they succeed in their attempts to reduce compensation, the salaries will still be 10 to 15 percent higher than those of U.S. civil servants, and about equal to those in the private sector.
These estimates are strongly disputed at the IMF and World Bank.
The international institutions insist they need to pay high salaries to attract and keep a high-caliber and regionally diversified staff that views public service as a lifetime career.
They contend that in many foreign countries, government and private sector salaries now run above U.S. levels. They point, as well, to high and tax-free salaries paid by the United Nations, by the Organization for Economic Cooperation and Development in Paris, and by the Common Market in Brussels.
Treasury officials proposed a larger pay cut for Americans because they receive a windfall through a tax-reimbursement system. This was designed to put them on an even footing with foreigners, whose international institution salaries are not taxed at all by their governments.
To achieve this equality, the Americans' salaries are "grossed up" by the amount of their federal and state tax liabilities. In other words, the institutions pay the Americans' taxes for them - to the tune of $15 million annually by the World Bank, and $5 million by the IMF.
But the way the system works, the institutions assume that American nations take only the standard deduction. Since, in fact, most itemize their deductions, they receive a tax reimbursement often far in excess of their actual taxes.
Treasury officials have proposed that reimbursement be either for actual taxes paid, or based on averages closer to reality. They would invoke that charge immediately, and phase in additional pay cuts for all employes - foreign and American - by eliminating or drastically curtailing the annual cost of living adjustments.
The controversy over salaries at the international lending institutions has been going on for a long time. It reached a peak last year, leading to formation of a joint World Bank-IMF committee, which is scheduled to make a report on compensation problems next month. Indications are that this report will also call for salary cuts, perhaps less than those urged by the United States.
From the beginning, salaries at these institutions have been slightly higher than comparable one in the U.S. government. But the disparity has grown over the years, mostly because the institutional salaries have been moved ahead regularly with the cost of living.
American officials, including those in Congress, feel strongly that the institutions' salaries are now too high, and should be reduced not only as a matter of equity, but also to stop a drain on resources that otherwise could be used to help less developed countries.
Speaking particularly of the World Bank, a Treasury official said: "Excessively high salaries provide a poor image, particularly when we have to go up to Congress for an annual review for appropriations."
Another source of contention is an immigrant ruling that bars spouses of foreign employes of the institutions from taking paying jobs in this country. This limitation is now in the process of change which will enable spouses to get and keep jobs in the United States.
Until now, a spouse of a World Bank or IMF employe has had to give up his or her own career. This is only one element in a long list of unfavorable factors that spokesmen for the staff say lower their real standard of living.
On the other hand, the United States questioned many fringe benefits available to employes of the international institutions, including first-class air travel, annual meeting expenditures, spouse travel, and generous housing loans.
The World Bank has now put a new policy into effect, as of March 15, curbing first-class travel. The United States says that will save $1.5 million annually. American officials are also seeking to cut down what they label extravagances at annual meetings.
Foreigners tend to think that such concerns not only are pretty, but also reflect a mistaken view that the United States taxpayer foots the bill for such administrative costs, including pay. Salaries and other costs come out of earnings from loans to countries that borrow from the institutions.