Major European nations, angered by the delay in Congress of legislation to increase aid to the International Monetary Fund, have vetoed a proposal to advance the IMF $3 billion, on which a matching amount from Saudi Arabia was dependent, top policy sources said tonight.
Formal announcement of the decision is expected to be made after a meeting here tomorrow of the Group of Ten deputy finance ministers, chaired this year by Italian central bank governor Lamberto Dini. The U.S. delegation here is led by Treasury Undersecretary Beryl Sprinkel and Federal Reserve Board Governor Henry Wallich.
Since the Saudi money was conditional on a parallel advance by the central bank of the industrial nations, the $6 billion monetary infusion that IMF Managing Director Jacques de Larosiere had claimed was essential to cover a "commitment gap" by the end of this year will be indefinitely delayed.
The critical factor in Europe's negative reaction to de Larosiere's proposal--to which they reacted with sympathy when first made--is the prospect that the $8.4 billion U.S. appropriation for the IMF is being hamstrung with limiting amendments, and might in the end be defeated altogether.
This reaction among Europeans was registered at a meeting of Common Market finance ministers in Kephalonia, Greece, last week and again among central bankers in Basle, Switzerland, this past weekend.
"People here were taken aback by what is happening in Congress to the IMF bill, so they don't want to provide extra resources now," one official said.
They are angry, moreover, that the United States has not been asked to participate in the extra $3 billion for fear of exacerbating congressional hostility.
It is pointed out that some IMF opponents in Congress have argued that if the United States holds back its contributions to international institutions, others will step forward to plug the gap. "We don't want to give those guys any extra ammunition," the official continued.
The decision to delay making $6 billion in temporary emergency funds available to the IMF also reflects a consensus reached in Europe over the past couple of weeks that the IMF does not face a liquidity crisis of its own.
But there are mixed feelings among those involved in this decision. "We are threatening the confidence that had been built up in the IMF's ability to meet the debt crisis at a time that the commercial banks are holding back," said one source.
It was learned that when second quarter figures for this year are published, there may be some improvement from the first quarter, but there still will be no net additional lending by commercial banks to the Third World.
Sources doubt that there will be a reversal of the G-10 deputies' decision at the ministerial meeting of the G-10 in Washington next week, just prior to the joint annual meeting of the IMF and World Bank. However, they don't rule out the possibility of an eventual additional advance to the IMF.
But in addition, major European governments, including France and West Germany, have begun to question whether the $6 billion to $8 billion "commitment gap" estimated by the IMF is accurate. They sympathize with the general problems faced by de Larosiere, and concede that his agency is encountering something of a cash flow problem. But some argue that in the past, the IMF has painted its own financial picture in overly stark terms.
The G-10 deputy session will pass on to the ministers' meeting in Washington next week two other key questions: How to redefine the borrowing nations' "access" to IMF loans, once quotas are increased, and recommendations on a new issue of special drawing rights (SDRs), a paper asset given by the IMF to its member nations.
On the access question, a compromise is being readied that would allow borrowing nations modestly more in quantity terms than they now are allowed to borrow from the IMF.
On the SDR issue, only West Germany now remains opposed to a modest allocation of SDRs, which are convertible to hard currencies and are urgently sought by the poor countries. Chances appear favorable that, for psychological reasons, the G-10 ministers next week will recommend a new issue, which would be the first allocation since 1981.
Sentiment, however, is growing against allowing the IMF to borrow directly from the commercial market, although the United States is not opposed to that.
In Washington, meanwhile, a Senate subcommittee debated plans for the Export-Import Bank to set aside $2 billion in loan guarantees for Brazil and Mexico. Sen. William Proxmire (D-Wis.) called the plan--part of the U.S. package to help the two Latin nations through their massive debt crisis--a major change in the bank's mission that should require congressional approval.
It appeared last night the differences would be resolved so the Ex-Im Bank's authorization bill could reach the Senate floor today or early next week. Since the House wrapped Ex-Im and IMF authorization measures in one bill, the Senate must approve the Ex-Im bill before a House-Senate conference can meet to resolve differences.