Federal Reserve Chairman Paul A. Volcker said yesterday that if the House fails to approve a big increase in the U.S. contribution to the International Monetary Fund, interest rates probably will rise, world trade will be hurt and the availability of credit might be impaired.
The House is expected to start debate either today or next week on a controversial bill to boost the nation's contribution to the IMF by $8.4 billion.
The IMF, the international financial rescue agency, has played a key role in making loans to major debtor countries such as Brazil and Mexico that have severe shortages of cash. The IMF also requires the countries to take steps designed to reduce their borrowing needs and eventually return to economic health.
Although the Senate approved the $8.4 billion increase last month, the measure is expected to have much tougher sledding in the House.
Opponents of the bill argue that the IMF bill is a bailout for the big international banks.
Volcker, testfying before the House Banking Committee, said it will be much more difficult to solve the international debt problem if the IMF does not have more resources to work with.
Volcker said that if the debt problems are not resolved, "I see repercussions on our financial markets and our prospects for recovery." If the bill is not passed, widespread fear would grip the world financial markets and interest rates would "increase," Volcker testified.