Normally, news about the International Monetary Fund can be found in the business section, but yesterday it was on The Post's front page. According to the story, finance ministers of the 10 leading IMF members have agreed that the fund's ability to lend must be quickly upgraded in order to handle the risk of massive default by Third World countries.
Our Congress must approve before U.S. participation in the fund can be increased. But last month, when Treasury Secretary Donald Regan sat down with the House Banking Committee to talk about a possible 40 to 60 percent boost in our quota, or contribution, to the fund, it was clear from the reception he got that there is trouble ahead.
Regan told the committee that unless debtor countries could turn to the IMF for more credit, a worldwide depression might ensue. Members of the committee, though aware of the gravity of international financial problems, made it clear that Congress could well balk at increasing the fund's power to lend.
Some members blamed the administration's domestic economic policies for reducing global trade to dangerously low levels, and said that without major changes of policy at home, more lending abroad would be seen as throwing good money after bad. How, some of the members asked Regan, could Congress come to the aid of improvident countries and greedy bankers, without outraging Americans suffering at home?
The question is a good one--and so is the answer. At the moment, developing countries owe some $700 billion to creditors (both government and private) in the industrialized countries. About half this sum is owed to private sources, mainly banks, which were far too eager to lend in the first place, and about half that private debt came due last year. A small number of countries owe the lion's share. Most of them are in deep trouble. On the average, for each dollar these countries took in through exports, they owed $1.30 in principal and interest.
After deducting the assets these countries have on deposit with their creditors, they still owe about $225 billion, of which $65 billion fell due last year--and was not payable. Private banks, using a variety of techniques, have rolled over about $46 billion already, and are negotiating the rest now, with the knowledge that more is to come.
Individually, bankers want to limit their risks by getting their money out of these countries, and by shutting off further lending to them. But bankers also know that if they behave collectively in this manner, massive defaults are inevitable, and these defaults would occur on a scale that could threaten the solvency and stability of the international banking system. If this happens, the supply of credit that keeps the international trading system running will be interrupted. And if that happens, production and employment will decline on a global scale. Every U.S. farmer and worker whose income depends in part on exports will feel the results immediately. The rest of us will feel them soon thereafter.
A great deal depends now on the bankers' nerve and discipline. In this respect, the International Monetary Fund is central. The fund can lend to countries that are in difficulty--not nearly the full amount they need, but enough to serve as a foundation. Equally important, the fund can and does impose conditions for these loans, conditions that require changes in the way the borrowers run their economies, changes which, once in place, give private bankers reasons for continuing to lend, rather than pulling out.
The fund is already deeply committed to problem countries, and expects the list to grow. It needs to have larger resources in order to cope. These resources come from quotas the fund members levy on themselves. We are the biggest contributor, and our example sets the tone.
Right or wrong in its economic policies, the administration is correct in understanding that the U.S. contribution to the IMF has to be increased sharply in order to galvanize others. Congress can and should debate what has gone wrong and why, but it must first take action to keep us afloat. It should support the administration's IMF proposal. The adminstration is not throwing good money after bad; it is simply pursuing America's enlightened self-interest--and what better reason is there for adopting any policy?