The treasury chiefs and central bankers of nearly 150 nations have descended on Washington for another World Bank/International Monetary Fund annual meeting, but the candid ones among them admit that they don't have any sure answers to the $600 billion to $700 billion global debt problem.
The mood of imminent disaster so palpable at last year's joint session in Toronto has faded. "But the debt crisis is not over: There is great instability, still, and great dangers in the world economy," says one influential European central banker.
A key question facing the IMF and the World Bank is whether last year's emergency response to the Third World debt crisis can be converted into something more permanent--still following conventional approaches--or whether innovative or dramatic action will be needed to prevent a collapse of the international monetary system.
There won't be any definitive answers to that question this week, although the talk in the hotel corridors and at the many receptions along Embassy Row will focus on little else.
As might be expected, the international establishment, led by IMF Managing Director Jacques de Larosiere and World Bank President A. W. (Tom) Clausen, argues that the situation is manageable, and should be dealt with on a case-by-case basis.
But as de Larosiere and Clausen muddle through, they have their hands out for lots more money to lend to the debt-burdened nations of the Third World. The rich nations, who are the only ones who can fork over the dollars, yen, marks and other suitable currencies, are dragging their heels, however.
Despite the lip service that almost everybody pays to the heroic job done by the IMF this past year, the unspoken feeling among the richer governments is that a little bit of austerity would be a good thing for the IMF, the borrowers, and the banks that--critics say--seduced the poor countries with overgenerous loans.
As a matter of fact, the liquidity crisis for the IMF has become so intense that de Larosiere told the executive board on Sept. 14 that the IMF would have to cut off new negotiations for emergency loans to needy countries for the first time in its history. De Larosiere acted to conserve the IMF's shrinking resources after the failure of his summer-long effort to persuade the European nations and the Saudis to provide a $6 billion stop-gap loan.
Treasury Secretary Donald T. Regan, acknowledging that the IMF is in a "dangerous" liquidity situation, said nevertheless that emergency help from the United States is out of the question.
To a certain extent, said one knowledgable source, de Larosiere and Regan "are engaging in a certain amount of arm-twisting" to persuade reluctant donors to provide more funds for the IMF. But there is little doubt that the squeeze is real.
Thus, unless a miracle happens in the next few days, as soon as the annual meetings are concluded, de Larosiere intends to start cutting back on $2.7 billion worth of loans that had been nearing completion.
Despite the gloomy nature of the debt problem, one ray of sunshine is concrete evidence that the world, led by the United States, is cautiously emerging from recession. Inflation and interest rates (although not real interest rates) have come down significantly, and world oil prices--which helped to touch off the crisis--have receded from their peaks.
To be sure, few share the optimism of the Reagan administration. The Europeans know their recovery is lagging behind America's. They and the poorer nations continue to express the same concern shown at the Williamsburg summit in May: Unless a strong effort is made to cut back the huge U.S. budget deficits, interest rates will move up again, the dollar's surge will resist any intervention efforts, and the incipient recovery could be aborted.
The IMF says real growth will run about 3 percent in the world economy from now through 1985, the bare minimum needed to allow enough growth in export markets for major Third World countries. That would mean that Mexico, Brazil, Argentina and the rest might be able at least to pay off the interest on their debts.
In urging nations to focus now on recovery, de Larosiere is known to feel strongly that governments should work to consolidate recent gains, thus assuring that the expansion is of good quality.
He feels that, not only would it be prudent for the rich nations to advance that controversial $6 billion to the IMF, but for the borrowing nations to tighten their belts, thus convincing creditors that it is still worthwile for them to continue their investments.
But he recognizes that the Third World indebtedness problem will continue for a long time. And because the commercial banks are now gun-shy, the international lending institutions will have to play the lead role.
That's why de Larosiere is upset by the refusal of the Europeans to come forward with a $3 billion emergency loan--which means that the Saudis won't advance their $3 billion. The fear at the IMF is that, if the commercial banks are to be persuaded to remain big lenders to the LDCs, the IMF cannot afford to hoist a permanent signal that it is withdrawing because of a shortage of funds.
The final key to the puzzle, as de Larosiere sees it, is a better understanding on the part of the United States, Europe, Japan and the other industrial powers that increased protectionism will negate any other gains: Ultimately, to service their debts and allow some room for economic growth, the Third World countries must be able to create export surpluses. And that can't be done if tariffs and quotas are used in the First World to protect inefficient industries.
Thus, the crucial problem to be debated here at the annual meetings is how to amass the necessary resources for the IMF and World Bank, and then how to apportion those resources among the claimants.
By the time the meetings are over, the public may be able to judge whether governments and commercial banks will provide enough financing to get the heavily indebted Third World nations back on their feet, or whether the radical reform measures proposed by those who believe that the debt burden is unmanageable should be followed.
Most of these proposals involve creation of a new agency to buy up the Third World debt held by banks at a discount. The banks thus would take a sizable loss. But the new agency, now the creditor for the borrowing country, could afford to reduce the interest burden, and give them more time to pay off the debt.
De Larosiere and Clausen will be insisting that the IMF, the World Bank, and the major governments demonstrated last year that they have the capacity and ingenuity to deal with the debt crisis, and that, if the borrowers get their houses in order, the problem can be solved.
"The foundations for a succcessful resolution of the debt problem have been laid," as de Larosiere puts it. But, he admits: "So far, however, we have been buying time."
For the IMF, the resources problem is divided into short-term and longer-term needs. De Larosiere, who has gone hat in hand around the world, says that the IMF's usable resources have dwindled to about $10 billion, but that he needs a total of $16 billion to $18 billion to fill commitments he has made and expects to make by the end of the year.
Thus, he speaks of a short-term commitment gap of $6 billion to $8 billion, and has been trying to borrow half of this sum as an emergency advance from Saudi Arabia, and the balance from European central banks--but none from the United States (in this form) because de Larosiere recognized that the administration would have enough trouble as it is getting the IMF quota bill through Congress.
But the Saudis won't contribute until the Europeans do, and the Europeans, who were on the verge of agreeing in April, now want to wait until Congress provides the U.S. share of the larger IMF deposits--$5.8 billion--that were voted by the agency last February.
The Europeans also aren't sure whether de Larosiere has overstated the IMF's needs. In Paris, where the rich nations recently decided to hold back on a $3 billion slice of the $6 billion to $8 billion, the Italian Central Bank's general manager, Lamberto Dini, said that the Europeans aren't convinced that the IMF needs the money right now.
"The IMF always has presented a bleaker kind of picture than in reality it turns out to be," says a cynical European.
A leading European central banker, interviewed in Paris a week ago, said:
"Frankly, it is difficult for Europeans to digest the fact that although the United States is in such a strong position financially, having all this capital inflow . . . that is helping finance the budget deficits and so on, it is not pitching in on this $3 billion. Given the fact that the U.S. banks are . . . those most exposed vis-a-vis indebted countries, it is hard to accept that the U.S. should not participate."
Thus, de Larosiere's short-term and longer-term resource problems merge: When he told the Europeans in July and August that they should come up with $3 billion (which would enable him to pick up the Saudis' $3 billion), they pointed out that the increase in IMF quotas next year should yield him at least $15 billion in hard currencies.
But de Larosiere argues that he needs money from now through the end of the year, that the additional $15 billion will go quickly next year in any event, and that, before 1984 is over, the IMF will be looking for yet other ways to acquire cash, possibly through borrowing in commercial markets.
Crucially, of course, the resources problem is tied into the question of "access": the bigger the pie, the more generous the IMF can be with the slices it cuts.
"Access" will be a trigger word during the sessions. There is no argument among the major contributing nations that, as the IMF's quotas are increased, the enlarged access of the past few years--up to 450 percent of quotas (deposits by member nations of their own currencies) over three years--should be trimmed.
The question is, by how much? If quotas are boosted, then allowing everyone to borrow 150 percent a year would quickly drain the IMF's enlarged resources.
Treasury Secretary Donald T. Regan revealed on Friday that the United States wants to see a dramatic reduction in the access rights over the next few years to conserve IMF resources. He said that, beginning in 1984, the 150 percent access figure should be trimmed to 102 percent, dropping to 85 percent in 1985, to 70 percent in 1986, and to 55 percent in 1987.
Because the quotas are scheduled to be increased, on the average, by 48 percent, a figure of 102 percent of the larger quota would roughly equal l50 percent of the old. But Regan's later-year proposals would sharply lower future borrowing rights--existing programs would be "grandfathered"--and are bound to be the focal point of the most controversial discussions of the coming week.
Most other countries in the IMF are pressing for "access" rights in the 120 to 125 percent range to allow Third World nations to borrow more, rather than less, in absolute terms.
"We're . . . hanging very firmly to the point of view that we must conserve these resources and move back toward the access that previously existed, although this cannot happen overnight," said Treasury Undersecretary Beryl Sprinkel.