Little unity seen at IMF meeting Currency crisis confounds leaders

September 25, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- The world's finance ministers and central bankers ended their annual get-together yesterday still divided on policy priorities, defeated by the European currency crisis and taught a lesson on economic growth by the developing nations.

Overwhelmed by recent events, the meeting of the International Monetary Fund and World Bank was unable to devote anything more than lip service to the urgent need to promote global economic growth and stabilize currency markets.

So unexpected was the virtual collapse of the European exchange rate mechanism that the issues briefing book, prepared for IMF Managing Director Michel Camdessus before the meeting opened last week, did not contain a single reference to currency markets.

Mr. Camdessus said yesterday that market stability depended on the adoption of sound economic policies by industrial nations, and he cautioned against resorting to the sort of "regressive" and "disastrous" capital controls that have just been imposed by some European countries.

"They create a lot of damage because they make you forget there are underlying causes for these types of crises," he said, adding: "This is no time for putting the blame on exchange dealers."

For a gathering of 172 nations that was meant to promote policy convergence in an increasingly interdependent global economy, there was a striking amount of divergence.

A central problem was that the main players were some of the world's richest nations, not used to, nor ready for, lectures from lesser powers and unelected bureaucrats on how to manage their affairs. They were not, however, spared.

The industrial nations found their economic policies the central focus for the first time at an international gathering traditionally geared to debating the problems of the Third World and more recently fixated on helping the previously centrally planned economies of the Soviet bloc.

There was much talk of "excessive" and "unsustainable" deficits, of overreliance on monetary policy rather than fiscal discipline and of the need for more open markets.

The IMF was finally charged with increasing its surveillance of the economies of the industrial nations.

But officials, lamenting their lack of real leverage, acknowledged that this would involve ear-bending rather than the sort of effective policy arm-twisting they can apply to Third World countries seeking their funds.

The United States, in particular, found itself frequently in the dock for its $333.5 billion deficit, its low interest rate policy and its rejection of tax increases.

IMF officials said reduction of the U.S. deficit was the linchpin for sustainable global recovery.

They also lamented the Bush administration's rejection of tax increases to go along with spending cuts to lessen the nation's debt load, which is blamed for hampering growth at home and abroad.

The IMF view was that the pain of tax increases and spending cuts should be endured to bring the U.S. deficit and long-term interest rates down, thereby setting the stage for long-term recovery.

The Bush administration has ruled out new tax increases, and Treasury Secretary Nicholas F. Brady's response was to urge low interest rates to stimulate growth, his finger pointing at the Europeans in general and the Germans in particular.

The Germans showed little inclination for any speedy concessions and firmly eschewed the British accusation that the Bundesbank's high interest rates were responsible for the currency crisis and Europe's lackluster economic activity.

While the industrial nations differed over how best to manage their own affairs, there was general praise for the economic progress among developing nations.

Their economies are expected to grow 6.25 percent this year -- six times the estimated growth rate of world output.

As Mr. Camdessus observed: "There is a welcome paradox here. In the past, we would have expected the majority of developing countries to show a disappointing performance, whenever the industrial countries were suffering a cyclical slowdown and international prices for primary commodities were depressed. But on the contrary, their recent growth has been the highest for a decade."

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