The free world's financial leaders yesterday agreed to sizable boosts in the resources of the World Bank and the International Monetary Fund, assuring both agencies that they can increase their financial aid to poorer countries over the next several years.
At the same time, these leasers - meeting as the Interim Committee of the IMP - expressed concern over the sluggish pace of world economic growth in 1978, and the absence of significant prospective improvement for 1979.
These issues, and others relating to international financial problems, will be discussed at a four-day joint session of the World Bank and IMF that begins this morning. President Carter is to address the gathering of some 3,500 world financial leaders this afternoon, outlining in general terms the U.S. effort to control inflation, reduce the trade deficit and stimulate exports.
British Chancellor of the Exchequer Denis Healey, chairman of the Interim Committee, told reporters that the distribution of international payments imbalances among major nations "will be better" this year and that would help to stabilize jittery exchange markets.
At a joint press conference with IMF Managing Director Jacques de Larosiere. Healey said a lower U.S. economic growth rate in 1979 would "converge" with improved growth patterns in Europe and elsewhere, yielding a better outlook beginning in the second half of 1979, "if we all work togother."
Healey, de Larosiere and other officials were nearly euphoric over the unanimous agreement to boost IMF resources. One IMF policymaker said that "the spirit of Camp David" had helped to underwrite the success of yesterday's session.
"Everyone was convinced that (President) Carter's enchanced prestige augurs well for his success in getting the commitments made here (for larger U.S. contributions) through Congress," he said.
Healey's reference to a more equal balance-of-payments situation was supported by estimates of both the staff of the IMP and the Organization for Economic Cooperation and Development (OECD), and indicated expectations of a sharp decline in the U.S. international deficit and an U.S. international drop in the surpluses maitained by Japan. This combination would likely be reflected in stabilization of the dollar.
The key decisions made yesterday to boost resources of the international agencies represented a victory for the pressures brought to bear by de Laroisere, who is supervising his first IMF annual meeting, and for World Bank President Robert s. McNamara.
Basic concessions were made by West Germany, which had advocated a more conservative approach, but which in the end aligned itself with positions taken by the United States.
The Interim Committee decided:
To issue, for the first time since 1973, 4 billion Special Drawing Rights (SDRs) for three years, distributed proportionally to the 134 IMF members. This issue, which will begin next spring, was a compromise between the German view (2.5 billion to 3 billion SDRs) and de Larosiere's orginal suggestion of 4 billion to 6 billion SDRs. All told, the 12 billion SDRs over the three-year period is equal to about $15 billion.
To approve a 50 percent increase in IMF quotas (the seventh quota increase since the IMF was established at Bretton Woods in 1944.) This quota increase, except for a small kitty distributed to 11 less-developed countries, will be in the same proportions that now exist. The increase will boost IMF resources by about 20 billion SDRs, from 39 billion to 59 billion SDRs, or roughly $73 billion. Healey said that the eighth quota increase to be considered in three to four years would involve some selective increases for major industrial countries.
To require that 25 percent of a nation's newly enlarged quota be subscribed in SDRs, rather than all in local currencies. This provision, originated by the United States, was designed to soften the fear of some countries that too much additional liquidity was being created in the world.
At the same time, when the finance ministers met as the Development Committee chartered by the World Bank and the IMF, they agreed in principle that the capital of the World Bank be increased by $30 billion to $40 billion over the existing $40 billion level.
This approximate doubling of the World Bank's general capital is precisely what has been urged by McNamara to allow an increase in his agency's lending by 5 percent annually after allowing for inflation. The United States had agreed in principle, but had until yesterday withheld commitment to a precise figure.
U.S. Treasury officials have been forecasting that the basic U.S. balance-of-payments devicit, known as the current account and running at an annual rate of $20 billion this year, up from $15 billion in 1977, would turn down next year.
But estimates by the IMF and OECD staffs suggest an even sharper improvement than anticipated by U.S. statisticians. The IMF calculates that the U.S. deficit might drop to an annual rate of $7.5 billion in the first half of 1979, and OECD group has an even brighter perspective, with the deficit put at an annual rate of $6 billion.
De Larosiere said that the decision to enlarge the regular resources of the IMF was "extremely important" and "will help the IMF exercise its new surveillance role." He said that "the moment had come to enlarge the capital basis of the IMF" because for the past few years the agency had been forced to rely on a number of different mechanisms, including the so-called oil facility and the "Witteveen facility."
Healey agreed that the enhanced financial status of the IMF "will put it in the center of management of international economic affairs."