The early line on the annual meeting of the World Bank and the International Monetary Fund that begins next Sunday in Seoul was that it would be a news bust. Officials had already decided that the time was not right -- politically -- to boost the bank's capital (although that is needed), and the IMF at the moment has plenty of resources on hand.
Also, despite the annual plea of Third World countries for a new handout of IMF currency -- the so-called special drawing rights, or SDRs for short -- a negative decision had already been made on this issue by the United States, West Germany and the other major powers. In fact, the sessions will authorize a study re-examining the whole basic rationale for the SDR process.
But as often happens at or around the time of the IMF/World Bank meeting, important international financial issues crystalize. Back in 1979, during the annual meeting in Belgrade, the dollar collapsed in a selling panic; gold soared (eventually hitting $800 an ounce). Federal Reserve Chairman Paul A. Volcker sped back to Washington for a crisis meeting with the Carter administration to initiate an excruciatingly tight monetary policy that put the economy through a crunch, but stopped the dollar collapse.
And three years ago in Toronto, the full scope of the Mexican economic crash became evident, triggering a reversal of the Reagan administration's casual view of the problem.
Now, holes are beginning to reappear in the carefully patched rescue fabric of loans to Mexico and other Third World countries. Bitter disagreements between the IMF and the borrowing countries have begun to boil over. Peru's President Alan Garcia, in a recent speech to the United Nations, threatened to use the Seoul meetings as a platform for denouncing the IMF, and withdrawing from the agency.
The IMF, led by Managing Director Jacques de Larosiere, will be on the defensive. Officials readily acknowledge that the Mexican economy has worsened with a substantial drop in the price of oil, a major export earner -- and of course, the devastating blow from the earthquakes.
But officials insist that overall, the major Third World countries have made exceptional progress over the past couple of years in reducing their international deficits.
"The reduction in their Third World current account imbalances is very impressive, even staggering," said one key official, "and one has to continue working on a case-by-case approach on these countries and see that the policies are working, are in place, and eventually lead to a lasting situation where growth can resume on a healthier basis. That is what we are trying to do. Now I don't want to go into individual countries because that's not the purpose of this conversation. But you can have ups and downs as long as the whole thing is moving in the right direction."
The Third World countries will complain bitterly that all their suggestions are ignored. The question of enlarged access to IMF resources will come up again, with the United States and other countries insisting that the more generous borrowing rights established in 1981 be phased down further.
To defuse some of the tension, the United States is trying to launch an initiative that will beef up the role of the World Bank, as shorter-term IMF "stand-by" loans are paid back. African loans by the IMF are sure to be in default, and a gimmick must be found to overlook that development -- and pump more money in. Treasury Secretary James A. Baker III and Deputy Treasury Secretary Richard G. Darman quickly concluded after moving across the street from the White House earlier this year that Third World nations could not be expected to accept the austerity inherent in IMF programs unless there is a real hope of a later payoff in economic growth that promises a better standard of living.
But a hastily devised plan by Baker and Secretary of State George P. Shultz for a new $5 billion fund -- built in part on the IMF trust fund, created when the IMF sold part of its gold -- to be jointly administered by the bank and the IMF -- is viewed skeptically at the IMF, which has become increasingly disenchanted with the ability of the bank bureaucracy to move with all due speed.
That, of course, brings one to the question of the quality of the bank's leadership. The Reagan administration has never been close to President A. W. (Tom) Clausen, and barely disguises the fact that it would like to replace him when his term expires in 1986. But it is hard to make the case -- whatever the earlier disagreements were -- that Clausen isn't going along with the new Baker-Darman ideas for the bank.
Nonetheless, "the Clausen question" will help preoccupy the delegates in Seoul, especially when coupled with rumors that Volcker can have the job for the asking.
Meanwhile, just in time for Seoul, the dollar once again is at center stage. This time it is the subject of a coordinated effort of the five major powers to bring it down against the Japanese yen, the German mark, and other nondollar currencies in order to correct the huge distortions in exchange value that have pushed the United States into an unsustainable international deficit.
In an extraordinary meeting in New York last weekend, the United States for the first time admitted that the dollar is over-valued, and agreed to undertake coordinated intervention in the foreign exchange markets to bring it down. This, as French Finance Minister Pierre Berogovoy noted, is the first time the United States and the other powers have been able to agree on such a public statement. It represents a major change in U.S. policy, the most significant symbol yet of the revolution at Treasury wrought by the Baker team.
The rest of the approximately 145 member nations will be eager to find out more about the intervention plans. Already, concern has been voiced that once the process of pushing the dollar down gets started, it could go too far, leading to a "crash landing" and a world-wide depression.
At Seoul, the IMF's policy board will be asked to consider an earlier report on international monetary reform that was produced not by the exclusive Group of Five, but by the 11 -member, so-called Group of Ten industrial nations. The G-10, meeting in Tokyo last June, came down very firmly against intervention, but left open the possibility that the Interim Committee could set the stage for a new international monetary conference.
Given new concerns about Third World debt, trade deficits and the huge imbalances in current accounts among the United States, Japan, West Germany and others, the call for a new "Bretton Woods" could gain attention in Seoul. But insiders say that specific action is highly unlikely.