As if world economies -- faced with a period of excruciatingly slow growth and high unemployment -- did not have enough problems, the grim struggle between Iraq and Iran threatens total disruption of oil supplies that give the pricing structure another cruel twist.
It is against this background of uncertainty that the 140 member nations of the World Bank and International Monetary Fund gather here for their joint annual meeting on Tuesday, a meeting that officials of both agencies consider to be among the most important of recent years.
This session will be unique for a number of other reasons:
For the first time, the People's Republic of China will take a seat in the two institutions, and name executive directors to both boards. Zimbabwe also becomes a member.
World Bank President Robert S. McNamara, who has announced his retirement as of mid-1981 when he becomes 65, will make his final annual addres after 13 years as head of the bank. McNamara's address on Tuesday promises to be an emotional highlight as he sketches his vision of an enlarged role for the bank in the 1980s.
There will be the first tentative discussion of a selective quota increase for the IMF beginning in 1982. This may give the institution the opportunity to redress existing imbalances that mean the voting power of some countries exceeds the scope of their real role in the economic world today, while others are in effect undervalued.
And for the first time, in articulating demands for help in meeting extraordinary balance-of-payments deficits, some of the Third World countries will level at the Organization of Petroleum Exporting Countries some of the same sharp criticism directed by the industrial world.
Already this session has included an anxious adagio with the Palestine Liberation Organization, which pressed so hard -- with Arab help -- to get in as observers that the only way out of the situation was to keep out all observers.
U.S. officials lobbied aggressively to keep the PLO out because "they have no legitimate purpose in attending," according to Treasury Assistant Secretary C. Fred Bergsten. Uniquely among international institutions, "the bank and IMF have not become politicized," Bergsten said. "They have stuck to their job, which is helping to reconstruct the world economy."
The PLO question -- which may surface again on the floor -- appears to involve an important test of power between the less-developed nations who numerically dominate the IMF and the World Bank, and the Western industrialized bloc (including the United States) that has more or less dominated the two institutions since their inception in 1944.
The real issue is the struggle by the Third World nations for two things: first, a tremendous increase in the amount of aid they get from the Western world and second, a much greater share in the decision-making process at the IMF and the World Bank.
At the United Nations in New York recently, the Third World's insistent demands for a "new international economic order," including proposals that actually would shift international monetary and banking functions into the U.N., were beaten back by the United States.
"They are tragically misguided," Bergsten said in an interview on the eve of the joint meeting. "These institutions (the bank and the IMF) are the ones that do the most for those guys."
A good part of the annual meetings -- as well as today's meeting of the IMF Interim Committee and Monday's meeting of the joint Development Committee -- will be devoted to assurng the Third World countries that the IMF and bank are adapting to their new and larger needs by more liberal lending policies, and moreover, that the sessions are ready to affirm even more generous policies for the immediate future.
For example, IMF Managing Director Jacques de Larosiere expects to report in his annual address that the IMF through the end of September had loaned a total of 5.9 billion special drawing rights (the IMF unit of account worth about $1.31) against 4.3 billion SDRs in all of 1979. In dollar terms, that is about $7.7 billion so far in 1980 compared with $5.6 billion, or a 50 percent increase on an annual basis.
In assisting members, de Larosiere says flatly that "the fund will be able to lend in larger amounts than in the past, when appropriate under special circumstances, and to go beyond previously established ceilings in relation to quotas of member countries."
In addition, recognizing that the problems caused by the oil cartel's 1979-80 round of price increases will stay with us for years, the IMF is now ready to lend for longer periods and to try to bolster the supply side of member nations' economies.
That means, in effect, that when IMF officials send lending missions to countries applying for help, the missions will not stress merely budget restraint and other harsh deflationary policies that in the past have earned the IMF an undesired reputation for being the leading international Scrooge.
The IMF will attempt to break new grund at today's Interim Committee meeting by approving a set of more free-wheeling lending policies in an effort to convince Third World countries that there has been a genuine shift in attitude.
"A lot of old images die hard," Bergsten said in the interview. "They think of the IMF programs they had 20 years ago. Of course, it's a different world and a different institution." Bergsten recalls that when Italy had its back to the wall in 1977 (thanks to the Organization of Petroleum Exporting Countries), the Italian press daily bannered headlines saying that the IMF was forcing the country to tighten its collective belt.
One night, during a scene on a popular soap opera on Italian TV, a woman shrieked in outrage at her husband: "Who the hell do you think you are, the IMF?"
De Larosiere is exceedingly anxious to achieve a better image for the institution. This past summer, he appointed a Pakistani economist, Azizali F. Mohammed, to the newly created position of director of external relations.
A pet plan of De Larosiere's is to be revealed today before the Interim Committee for a brand-new IMF facility to help those poor countries with balance-of-payments difficulties caused by the higher cost of importing cereals. In effect, it will be a "second window" of the IMF's Compensatory Financing Facility, which makes subsidized loans to IMF members suffering a serious fall-off in export revenues. The new food facility would cost the IMF about 300 million SDRs, or $400 million a year.
De Larosiere says that such a plan not only is workable, but is a humane idea to help cope with famine. It was suggested originally by the Food and Agriculture Organization and the World Food Council.
In addition the IMF will be asked to endorse other more liberal lending policies, as detailed last week by Bergsten. These include, most importantly, allowing a borrowing country to get 200 percent of its quota a year for three years, or 600 percent in all.
All of this newly intended largesse will cost money, to be sure. De Larosiere is trying to put the best face possible on coming back from a money-raising trip to the Persian Gulf empty-handed as a result of the Arab nations' pique over the exclusion of the PLO. De Larosiere hasn't entirely given up on his earlier plan to borrow between 6 billion and 8 billion SDRs a year from the rich OPEC countries for the next three years. In dollar terms, that's between $8 billion and $10.5 billion a years.
But it now becomes only prudent to explore the possibility of IMF borrowings from the private money market in case the OPEC nations keep their pocketbooks tightly shut. The Interim Committee is expected at these sessions to authorize a study of the problems involved in going to the market.
The World Bank's problems also are complicated by the PLO tangle. The Saudis and Kuwaitis already have suspended loans earlier pledged to the bank. Moreover, a McNamara proposal for a separate lending agency to spur energy development in the world's poor countries depends entirely on whether the OPEC nations with surplus capital are willing to participate in the financing needs.
Another problem for the bank will be to decide when the People's Republic of China will be eligible for its first borrowings from the International Development Association (IDA). When the current lending kitty for the IDA was established (in IDA jargon, the Sixth Replenishment), China's needs were not a factor to be considered. Although China will not draw major World Bank funds until the Seventh Replenishment, it seems almost certain to get at least token money out of the Sixth Replenishment, and that would have to be at the expense of other major IDA clients -- notably India.
Together, the bank and IMF will have to try to deal in the Interim Committee and in the Development Committee with the key recommendations of the Brandt Commission. But neither agency appears ready yet to take up again the question of linking SDR creation and development, nor to go immediately to a rejiggering of the power structure to accommodate Third World (or Brandt Commission) demands.
But both the top brass in the IMF and U.S. officials are ready to send signals to the poorer countries that at the time for the eighth review of quotas, "there should be a fresh eye," as one put it, on the relationship of quotas to real financial power in the world.