Agreement among 11 major industrial nations to boost the resources of the International Monetary Fund should ease fears that the IMF "would run out of money" to handle the international debt crisis in the Third World, Treasury Secretary Donald T. Regan said yesterday.
On his return from Paris where he and other finance ministers settled Tuesday on a new $19 billion emergency standby fund to supplement normal IMF resources, Regan said that the agreement also demonstrated that the rich nations would "stand up" to their responsibilities to help the less fortunate get out of trouble.
All members of the IMF are eligible to draw from this emergency pool, but only in an international crisis situation, and if the IMF's normal "useable" funds--hard currencies desirable for borrowing--are exhausted, Regan said. The U.S. share of the $19 billion would be about $4.75 billion. This would be in the form of congressional authority to borrow, not a budget expenditure item, Regan pointed out.
But a panel of experts testifying on the global debt issue before a Senate subcommittee chaired by Sen. Charles McC. Mathias (R.-Md.), while endorsing the enhancement of the IMF's lending power, warned that a long-term solution to the poor-country debt problem depends heavily on economic recovery in the industrial world.
One witness, New York banker Felix Rohatyn, predicted that some of the $700 billion in debt owed by the Third World and eastern European bloc may never be repaid.
Rohatyn proposed that instead of asking commercial banks to increase their lending commitments, some $300 billion of existing short-term debt be refinanced into 25- to 30-year maturities at only 6 percent interest--less than half of the average current rate--which would save the borrowing countries about $15 billion to $20 billion in annual debt service costs.
Rohatyn acknowledged that his proposal would mean big losses for commercial banks, their stockholders, and for the taxpayers in the lending countries. But he contended it would be an honest abandonment of "the fiction" that some of these loans would actually be paid off in the short term, and give the economies in the borrowing countries a chance to recover.
Regan hinted that one way in which the poor nations may get help would be through a new issue of Special Drawings Rights (SDRs)--an international asset created by the IMF for its members. SDRs have not been issued since 1981, but Regan said that this idea--long favored by the poor nations and by the IMF staff--would again be discussed at the annual IMF meeting this fall in Washington.
Reminded that the United States had opposed a new issue of SDRs in Toronto last September because of what it said were potentially inflationary consequences, Regan responded that the U.S.'s position "can change."
But Regan sought to dampen the notion that the United States was turning in any dramatic way from an anti-inflation policy to one concentrating on stimulating economic growth. The Paris communique' issued by the industrial nations, including the United States, had stressed the need for "renewed and sustained" economic growth to counter the forces of recession.
"I wouldn't want us to take the inflation rate above 5 percent or 6 percent," Regan said. "The challenge" is to find ways of generating growth without inflation, and every country is striving to do it, he added. He hazarded a guess that "a country like Japan could afford it, but a country like Germany would resist it."
As for the United States, "we already have a stimulative" policy with high fiscal deficits and a "pro-growth" money policy that is carrying actual monetary expansion over the Federal Reserve's targets, Regan pointed out.
Regan confirmed that the rich nations--who gathered in Paris as the Group of 10, but soon will become the Group of 11 with the inclusion of Switzerland--had also agreed to support a substantial boost in IMF quotas--the deposits of national currencies that form the bulk of the IMF's normal funds. He expressed confidence that these quotas could be put into effect by the end of 1983, two years ahead of schedule, although he conceded that the legislation will be difficult to get through Congress.
The Treasury official said discussions in Paris had centered an a 40 to 50 percent increase in the quotas, now totaling about $67 billion, and that the U.S. position is "at the low end of that scale--still."
A report from Paris Tuesday said that the United States agreed with the other nations on a 47 percent boost, to a total of $99 billion. But Regan insisted "negotiations" are still going on, and that the issue won't be settled until a meeting here on Feb. 10 and 11 of the IMF's policy-making board, the Interim Committee.
He said that the industrial nations will recommend that at least 25 percent of each country's boosted deposit quotas be paid in SDRs or "useable" currencies.