Two central impressions emerge from discussions with government and private money-men who converged on Washington last week for the annual circus called the World Bank-IMF conference.
The first is that the rest of the world is fearful that Ronald Reagan's economic policy won't work. And the second is that whether others like it or not, the richest nation in the world uses its enormous political and economic clout to get its own way.
Most of these hard-headed financial experts simply don't believe that either President Reagan's original program, or as modified by his current and somewhat desperate effort to discover new budget cuts and/or additional revenue, will generate a recovery in the United States.
They would much rather be wrong about this. "I don't know what will happen to the rest of us if Reagan's program doesn't revive the U.S. economy," said one banker. "We desperately want the program to work, because we can't stand a deep-seated inflation in the most powerful country in the world."
If there is one area on which the poor and the rich nations agree, it is that high interest rates generated by American policy pose a major threat. "My God," said one European government official, "what we desperately need right now is a little bit of real economic growth. But we can't get it while interest rates are this high." Most of them suggest thatthe erratic fluctuations in the world's stock markets last week largely reflect the uncertainty over interest rates.
The fear that is expressed in various ways is that interest rates at current -- and possibly higher -- levels will create enormous social and economic problems everywhere in the world. French Economy and Finance Minister Jacques Delors, for example, warned that if high interest rates don't come down, the rich nations could be "undermined by unemployment, the accentuation of inequalities, and the desperation of the younger generation."
I also found an undercurrent of fear that the present uncertainty and unpredictability over "Reaganomics" may be deepened by the administration's current flirtation with gold. The possibility of a return to a gold standard is now under discussion by a U.S. government gold commission. The commission, headed by Treasury Secretary Donald Regan, is scheduled to make a report next year. Even though a return to the gold standard may never happen -- and if it did, it could be 10 years or more down the road -- the disturbing thing to most observers is the sober and dignified attention it is getting. Says one observer:
"Reagan might reach for a gold-dollar link in a desperate effort to salvage something if his 'economic recovery program' in fact does not work."
The second thought I take away from these sessions, relating to the existence and use of American economic power, was effectively demonstrated in June when the Europeans first raised the interest rate issue directly with Reagan at Ottawa.
The U.S. response then -- and to the few who dared to raise the issue again last week -- is that the United States doesn't like high interest rates any more than anyone else but is taking a tough posture in everybody's interest. It's bitter medicine, the president argues, but it's good for you. Moreover, Reagan is able to feed foreign critics the same effective line that seems to baffle the Democrats at home: What is your alternative?
Now, in another dramatic example of how the United States uses its muscle, Reagan unabashedly brought to this audience, which included mixed and socialist as well as capitalist economies, a demand that all follow a private-sector, free-market approach to the question of aid to the developing countries.
He and his principal assistants have been brusquely telling both the IMF and the World Bank to toughen up their conditions for loans, and in any event, to rely more on private banks and multinational companies, because the United States will place limits on its contributions for these purposes. As for the poor countries, the Reagan message is: shape up your economies, tighten your belt, and quit borrowing so much money.
The American pressure on the IMF arose because, as a European source put it, "for a while back there, it began to look as if the IMF was shopping around for customers." Even though IMF officials insist they already had been applying strict leading standards on their own initiative, the complaint had its effect: IMF speeches and statements began to take on a qualitatively harder tone. Privately, officials concede this shift in nuance, expecting, as one official said, that "the U.S. will keep our feet to the fire."
Around the IMF, there is a clear memory of what happened to Managing Director Pierre-Paul Schweitzer back in the Nixon days when he challenged American policy: Instead of being reappointed, he was axed at the insistence of then Treasury secretary John Connally and undersecretary Paul Volcker.
As might be expected, the poor nations don't like what's going on. Even a moderate like Phillippine Prime Minister Cesar Virata thinks the very character of the current international monetary system is being changed. But the poor nations have virtually no power, beyond moral suasion, to try to squeeze more out of the rich world. The socialist and mixed-economy representatives didn't like Reagan's suggestion that political freedom and economic success are compatible only with capitalism. But the other industrial nations seem content to follow the U.S. lead. As one banker put it to me, "let the United States do the dirty work. It won't help us and it won't hurt us, and besides there's nothing we can do about it if America wants to tighten up.