SEVERAL ARAB governments are now pressing an ugly dilemma on the two big international financial institutions crucial to the Third World. The World Bank and the International Monetary Fund hold their annual meetings here at the end of the month. The Arabs want them to admit the Palestine Liberation Organization as an observer.
If they do not, the Arabs hint that they will retaliate by refusing to lend their oil wealth to the bank and the fund. But if they do admit the PLO as an observer, their support in the United States -- by far their largest contributor -- will be jeopardized. In either case, the bank and the fund are being drawn into a kind of corrosive political combat that can only damage their real work. i
In practical terms obsderver status is not worth much. It offers the opportunity to attend meetings that are, in any case, public -- although not to participate in them. The Arabs' purpose is to try to endow the PLO with some degree of official recognition in as many places as possible. More broadly they are seeking, with a rising sense of frustration, strategies to translate their great financial resources into political influence.
If the two institutions refuse the PLO and if the Arabs carry out their threat, the costs to the world's poor nations will be real. The Arab oil-exporting countries would presumably continue to leave much of their money in the Western financial markets where the bank and the fund could borrow it indirectly. But that would mean higher interest for the borrowers and perhaps less money to be lent. Those conditions are not crippling, but neither are they trivial. As for the other alternative, admitting the PLO as an official observer, the Carter administrattion is already having great difficulty getting funds for international aid out of Congress. The authorization for the latest contribution to the IMF is likely to come to the Senate floor this week.
On principle, the right choice is to refuse to admit the PLO as an observer. It's right not because it avoids offending American senators, but because it keeps these two institutions out of an altogether extraneous political quarrel. Most Third World governments, unfortunately, still reflexively support the Arabs. They are getting increasingly uneasy about it, as the damage done them by the oil price increases becomes evident. But most of them consider the PLO a valid spokeman of one group of the world's dispossessed.
The World Bank and the International Monetary Fund are run by boards representing the member countries, both rich and poor. If the Third World governments stay together, they may well have the strength to bring the PLO. But they can do it only by risking, in some degree, the real and substantial financial aid now flowing to their own countries. It's the governments of the poor countries that now have to resolve the dilemma.