Jacques de Larosiere, managing director of the International Monetary Fund, is a man with a problem: He must satisfy the demands of the many poor members that borrow from the IMF and at the same time respond to the concerns of some rich nations that the fund loans are made on conditions that are too lax.
Last week, Treasury Secretary Donald T. Regan publicly declared that the IMF had to tighten up in the future. But yesterday, the embattled De Larosiere got important support from the policy-making commmittee of the IMF, which in a communique "strongly endorsed" the current practices and policies that the IMF has been following.
On the other hand, the Interim Committee also stressed that the borrowing countries had to follow "strong and comprehensive adjustment policies" when they borrow money from the IMF, and De Larosiere himself admitted there had been some failures, when countries had not been able to meet conditions established by the fund. "The fund's programs have mostly been working," De Larosiere told a press conference at the conclusion of the Interim Committee meeting.
The managing director intends to continue his pursuit of additional medium-term borrowing from other member countries in order to expand the fund's lendable resources before the next general review of quotas, expected to become effective in 1984.
He anticipates borrowing 7 billion SDRs (about $8.5 billion) this year, and as much as that next year.
He had secured a commitment of 4 billion SDRs for each of the two years (with the possibility of more in a third year) from Saudi Arabia, and an additional 1.3 billion SDRs this year from a group of central banks (not including the United States). That left a gap of 1.7 billion SDRs this year and 3 billion for next year, some of which may yet have to be borrowed in the private market.
De Larosiere, chatting at the IMF's elegant headquarters on G street NW, said he has been trying to meet what he describes as a brutal increase in the lesser developed countries' debt-servicing costs by expanding the IMF lending program. It allows a hard-pressed country to borrow up to 450 percent of its quota over a three-year term, instead of the previous 260 percent with a two-year limitation. That is in addition to any drawings on the IMF's low-conditionality facilities.
But even before the United States' suggestion last week that the IMF should be more strict, De Larosiere was insisting that the IMF policy did not represent a general easing of the borrowing rules.
The way the managing director sees it, the IMF's clients are indeed able to get larger loans with a bit longer maturity, but the conditionality remains high. It is in sharp contrast, he notes, to the period just after the first oil shock, when the fund financed member nations' deficits with almost no strings attached.
The fund also has been trying to stress its focus on supply-side economics. In formal speeches this summer in Europe explaining IMF policy, De Larosiere said that the IMF approach "has meant a broadening of our policy interests, rather than a weakening of our prescriptions for balance-of-payments adjustment. Thus, while we continue to stress the importance of appropriate demand management, we now systematically emphasize the development of the productive base of the economy and we contemplate that countries may, therefore, need our financing for longer periods."
"You have to remember," says an IMF aide, "that the deficits we have to finance are so much larger. Before the oil shocks, a typical LDC balance of payments deficit might run 2 percent or 3 percent of its gross domestic product. Now, they run 8 percent or 9 percent of GDP -- or more."
In his speech tomorrow to the annual meeting, De Larosiere plans to detail the striking expansion of IMF commitments, which at midyear had topped the 1980 total of 9.5 billion SDRs, and are now expected to set a record for the full year close to 15 billion SDRs.
He also is expected to argue the case that if the IMF is allowed to play out the role it had planned, that an optimistic scenario laid out by the staff can be met. This scenario suggests that the financial conditions of the world in 1985 are going to be strained but not impossible to manage.
The key to De Larosiere's relatively optimistic assumption is a faster resumption of economic growth in the industrial nations than many others see and maintenance of the good growth record in the LDCc, which would be expected to follow IMF guidelines for adjustment of their internal economic policies. He also is counting on stable real oil prices, a good possibility given the existing glut.