The United States and other world powers struck a compromise agreement yesterday for the expansion of the International Monetary Fund's resources, which they said would meet emergency loan needs of the Third World for the next few years.
After a sometimes tense two-day meeting, finance ministers representing the IMF's 146 member nations voted for a 47.4 percent increase in their quotas--deposits of national currencies--in the fund from the equivalent of $66.8 billion to $98.5 billion.
Britain's chancellor of the exchequer, Sir Geoffrey Howe, conducted the meeting of the Interim Committee, the IMF's policy board. He said the increase represented "what is necessary, desirable and feasible."
It is far short of the 100 percent increase that the poor nations had argued is critical to their survival, but well over the 25 percent the United States initially proposed last year and more than the 40 percent increase that Treasury Secretary Donald T. Regan was suggesting earlier this week.
Although a final communique said that estimated rates of both world economic growth and inflation had been revised downward since the last Interim Committee meeting in September, 1982, it rejected the demand by the poor nations for a "re-flationary" or world expansion program.
Instead, it called on national authorities to continue "to avoid measures that might generate harmful expectations with regard to inflation."
Although the Interim Committee turned a deaf ear to the poor nations' demands for a new $13 billion annual issue of special drawing rights, --IMF accounting units which can be converted to hard currencies--it set in motion an examination of a more modest sum by the annual meeting here in September. This could lead to the first new issue of SDRs since 1981, beginning in 1984.
Regan told a news conference that "we are very pleased with the agreement," but an IMF official, disappointed by the decision on quotas, observed: "The United States carried the day."
Although the compromise calls for the quota increases to come into effect by the end of this year, or two years ahead of schedule, IMF Managing Director Jacques de Larosiere conceded yesterday that the IMF still may have to scrounge to find money for the rest of this year. He mentioned the possibility of borrowing from the commercial market, or asking for help again from Saudi Arabia.
"Nothing is ruled out," de Larosiere said. By the end of this month, IMF resources available for lending will have dropped to about $8 billion, sources said.
In recognition of the urgency of the problem, Regan said that the administration would send its request to Congress "in a few days" for its share of the quota increase, $5.8 billion. To this will be added a request for $2.6 billion, the U.S. share of an expanded emergency credit approved last month by the United States and 10 other rich nations, grouped as the General Agreements to Borrow (GAB).
The administration anticipates that its request for $8.4 billion will meet with considerable resistance on the Hill, although the lines of credit, when tapped, are balanced by assets on the books of the IMF and are not a budget expenditure item.
Some members of Congress tend to believe that IMF funds are used to "bail out" careless multinational banks.
But de Larosiere told a news conference that "we would be bailing out the banks if they withdrew their lines of credit and we financed the balance" of a borrowing country's needs. "Instead, we have been using our catalytic role to get the banks to increase their exposure, so, if anything, we have been 'bailing the banks in.' "
The compromise of 47.4 percent was arrived at by rounding down to 90 billion SDRs the 91.54 billion SDRs that would have represented a full 50 percent increase in quotas. This was the amount that most other industrial nations had suggested as the absolute minimum necessary.
Howe said the boost in IMF quotas "will make an important contribution to recovery of the world economy."
He said that, when the quota increase is added to the recent increase in the GAB's line of credit from $7 billion to $19 billion, plus Thursday's pledge by Saudi Arabia to add to the GAB pool, "The IMF is adequately equipped over the next several years to carry out its role." He promised, as well, that the IMF would remain "flexible" in responding to changed needs.
Although de Larosiere had struggled to get something close to a doubling of the quotas, he made the best of yesterday's result, pointing out that adding up the 47.4 percent quota increase and the GAB and Saudi pledges almost exactly doubles the IMF's "usable" lending funds.
This comes about because only half of the IMF quotas is in the kind of hard currencies that borrowing countries can use, while most of the GAB and Saudi money is "usable" in this sense.
In response to demands by other major countries, revisions were made in quota and voting rights that would more closely reflect their relative positions in the world economy.
The United States, still retaining veto control, agreed to a reduction in its quota from 20.65 percent to 19.9 percent, while Great Britain dropped from 7.1 to 6.8 percent. Major increases were approved for West Germany, from 5.3 to 6.0 percent; for France, from 4.7 to 5.0 percent; and for Japan, from 4.0 percent to 4.7 percent.