Treasury Secretary W. Michael Blumenthal told an international economic conference here yesterday that the world's economic stability will depend largely on the success of a brand-new role for the International Monetary Fund - "surveillance" of exchange rate relationships among major nations.
He told the opening session of the IMF's Interim Committee that the United States is depending on the surveillance function to help correct a serious imbalance in international accounts. This imbalance at the moment finds the United States $20 billion in deficit, while Japan. West Germany, and Switzerland collectively have a surplus of about the same amount.
"Surveillance" describes a sort of traffic cop responsibility for the IMF, which now, under article IX of amended rules effective April 1, 1978, undertakes to make sure that member countries follow agreed-upon rules in setting their exchange rates. Blumenthal said that the amended rules "mark a new phase of monetary history."
He suggested certain improved procedures and informational flows to make sure that the IMF does the most efficient possible job.
Meanwhile, there appeared to be wide differences among the 134 nations represented here on the interim committee on the state of the world economy and prospects for the future. Another divisive issue is by what means and to what extent the world should be supplied with extra financial resources to cope with balance of payments deficits.
A surprise proposal was one made by the Mexican government, for the rich nations to put up a fund of $15 billion for long-term development loans to poor countries.
AN attempt is to be made to resolve some of these differences at a closed breakfast meeting this morning among the so-called "Big Five" finance ministers - the United States, West Germany, Japan, France, and Britain. Later today the wind-up session of the interim committee, is expected to produce a communique summarizing any results.
European sources say bluntly that American appraisals of European growth prospects this year are too optimistic, especially if present indications of sluggish West German growth prove to be correct.
But West German officials here point out that their simulus program had been put into effect only last Jan. 1, and the Bonn government has no intention of adding a new thrust to it - as Americans suggest might be needed - until first quarter results are available in mid-May. That would be time, observers here noted for some adjustments to be made before the economic summit in Bonn July 16 and 17.
There is no suggestion that the IMF in using its new surveillance powers, would use sanctions to force a country to adopt or change an exchange rate. But the managing director of the IMF would have "consultations" with a member country if its exchange rate seemed out of line. What's counted on is the moral pressure from the rest of the organized financial world. U.S. Undersecretary of Treasury Anthony Solomon noted here yesterday: "Don't underestimate the power of public opinion."
The international monetary system as revised at Jamaica in January, 1976, allows a country free choice in choosing exchange rate arrangements. But it requires that each nation pay attention to the economic "fundamentals" that promote growth and reasonable price stability. And each fluctuations or manipulations to get a trade advantage.
Blumenthal proposed three specific steps that would help the IMF perform as a traffic policemen and thus "help in balance of payments adjustments."
First, he said the IMF must get better information on intervention, exchange market developments, and international capital movements. Second, he suggested that the advisory interim committee be transformed into a permanent decision-making Council of Governors, a step contemplated by the new IMF rules. Third, he called on the IMF to make separate and regular reports on how surplus and deficit countries actually make adjustments to shift back toward better balance.
One touchy area - which almost certainly will not be resolved at this meeting - relates to additional world liquidity, that is, financial resources.
The IMF staff had been pressing for a new allocation of Special Drawing Rights (SDRs) - a man-made IMF international credit, about $10 billion of which is now held by various countries.
The last allocation was in January, 1972, and a feeling has developed that a new issu is needed to give the SDR credibility as the central asset of the new international monetary system.
But this proposal has been effectively sidetracked by U.S. opposition, and the question comes down to whether a "token" SDR issue will be approved to keep the SDR alive.