A leading Third World spokesman charged yesterday that the decision this week by the International Monetary Fund to not continue allocating Special Drawing Rights was tantamount to "an abandonment of the existing international monetary system."
Cesar Varata, prime minister and finance minister of the Philippines, said in an interview that unless the IMF continues to issue SDRs on an expanded basis, "the poor countries will find the IMF inadequate for their requirements and will not avail themselves of IMF facilities." In that case, Varata said, "the IMF's influence will be reduced to the extent that it will have only a limited impact on the adjustment process."
The SDRs -- a paper credit issued periodically by the IMF to its member countries -- can be exchanged for hard currencies. SDRs thus have been one of the principal liquidity props for the poor nations. In addition to fighting for more SDR issues by the IMF, the poor countries long have been seeking a bigger and disproportionate share.
Varata, who is also chairman of the cluster of poor nations represented as the Group of Twenty-Four, hinted that as a consequence of the IMF decision on SDRs, and related efforts at the annual meeting here this week to minimize the IMF's effectiveness, the poor nations at the Cancun, Mexico, summit next month may call for "a world monetary conference to set up a new international monetary system."
The minister expressed the hope that the Cancun summit would get away from the fruitless confrontation at the United Nations on North-South issues, where the "gulf has grown between the ultra-conservative position and the most radical demands." He said the hope for Cancun was that the world leaders could arrive at a middle ground. Essential elements in a reasonable compromise, Varata said, would be a reduction in protectionism, lower interest rates, and "greater financing of energy development" in the Third World.
Varata said that the poor nations represented by the G-24 came to Washington this week convinced that the IMF management, led by Director Jacques de Larosiere, would back a continuation of SDR creation at an expanded level. The G-24 recommended that the current issue level, SDR 4 billion (roughly $4.5 billion) be increased next year to SDR 12 billion (roughly $13.5 billion).
But U.S. objections, supported by the United Kingdom and West Germany, killed this proposal, although Canada and other supportive nations salvaged a compromise by which the policy-making Interim Committee directed a study of continuance of SDR creation at the current SDR 4 billion rate.
Since that announcement by the Interim Committee last Sunday, the United States and West Germany have again spoken up, and strongly, against the need for even this level of SDR issue, and Varata admitted in the interview that he is "not hopeful" that there will be any continuance of the special credit. It is clear, also, that he feels that the IMF and de Larosiere have let the poor nations down on this question.
"If you follow the arguments of those blocking the SDR," Varata said, "they say there's enough liquidity in the world -- more isn't needed. But reserve currency countries (such as the United States) can have endless liquidity, and if the SDR is to have only a residual role, we'd better think of a new monetary system.
"If the SDR is to be the centerpiece of the system, it must be allowed to grow. Otherwise, it won't be the centerpiece, but the tailpiece."
Varata also rejected the American view that the IMF should tighten up on its loans conditions. If anything, he says, conditionality should be eased in view of the external pressures being brought to bear on the LDCs as a consequence of higher interest rates, and the second oil shock.
But where deficits arise out of domestic decisions, Varata acknowledged the need for belt tightening. In the Philippines, he noted, because of an awareness that the resources of rich nations are limited, the potential economic growth rate has been cut back from 7 percent to 5 percent in real terms.
The Third World leader was skeptical of the universal applicability of the American efforts at the annual meeting this week to emphasize the private sector. "In the very poor countries just starting up, many do not even have a private sector," he said. But he agreed that the World Bank could help work out a code of ethics to define "the overlapping areas of host country and multinational interests" that would help the development process.