Cover Image
close this bookCERES No. 058 (FAO Ceres, 1977, 50 p.)
close this folderWorld report
View the documentTime for a little order on the commodity markets
View the documentThe new IMF facility: an oxygen mask
View the documentBiogas plants
View the documentThe club of the friends of the Sahel
View the documentA return to traditional cropping
View the documentRADAM discovers an unknown world
View the documentDevelopment aid: UNCTAD is trying to sort it out
View the documentReversal of a historical trend: more young farmers in the United States

The new IMF facility: an oxygen mask

With some countries on the brink of bankruptcy or already having ceased to pay, and others heavily indebted, anxiety occasionally penetrates international finance, which however makes a virtue of impassivity. To prevent the spread of this malaise, the International Monetary Fund (IMF) has received a mandate to create, as quickly as possible, a new financial mechanism. The decision was taken at a meeting of finance ministers of the Committee of Twenty in Washington, D.C., at the end of April.

The "kitty" that will be collected will serve to refloat both the industrialized and the developing countries that are experiencing payment difficulties and do not look as though they will get out of them for several years. This difficult situation, peculiar insofar as it has lasted some time, is to a large extent the result of world recession and inflation and the 1973 increase in the price of petroleum. Since then, the oil-producing countries have accumulated surpluses by way of external payments to the order of $140 thousand million. These surpluses have been set off by deficits among some industrialized countries-with the exception of the United States, the Federal Republic of Germany, Japan, the Benelux countries and Switzerland-and all the economically developing countries. To settle the bill, the countries in deficit would have been able to print more money if, by any chance, they had been in a position to make the creditors accept the notes. Unable to do so, they filled up the hole by getting into debt, particularly on the international financial market where the oil-producing countries have placed their surpluses on deposit. With such a mission, which has consisted in fixing the interrelation between surpluses and deficits, so as to maintain a sort of perpetual motion, the big international banks have excelled with new methods.

Nevertheless, many countries, in order to keep afloat, are indebted up to their necks in unprecedented proportions and on more and more onerous conditions. OECD calculates at $90 thousand million the accumulated indebtedness of the industrialized countries in deficit, among which France, Italy and the United Kingdom are prominent As to the indebtedness of the poorer countries, it has been around $80 thousand million since 1974. Worse, contrary to general opinion a few years ago, all hope of a remedy to the situation before 1980 has fled. The swelling of the debt in recent years and its probable expansion in the years to come have aroused anxiety, particularly among the private banks, which have covered a large part (between 50 and 60 percent) of the borrowing It must be added that, since 1974, conditions for private credit are hard: higher interest rates and duration again down to five years. Consequently, credits granted since 1974 will fall due at the same time as those granted earlier.

Will the debtors be able to meet their payment. If not, presumably their financial credibility will be called in question. Some people have not hesitated to put this type of question and a strong back-stopping operation by IMF was the reply. The international organization's action seems all the more timely inasmuch as, when granting assistance to a country, after having examined its books and imposed conditions, if necessary, it delivers a sort of certificate of respectability to the debtor.

Why another financial mechanism? The services of IMF were already much in demand in 1976, since it granted some $7 thousand million in loans, of which half were by way of compensatory financing for exportations. Furthermore' it has granted credits of $2 thousand million out of the unexpended balance of the oil facility set up in 1975. In all, although it requested another parallel mechanism arranged by the rich countries in the Group of Ten for the credit in January to the United Kingdom, IMF is short of money to accomplish the missions assigned to it. The new facility, called the Witteveen facility, will; enable it to replenish its coffers. It will collect $14 to $16 thousand million; through equal contributions, - on the one hand from industrialized countries, like the Federal Republic of Germany, the United States, the Netherlands and Japan, and on the other, the oil-producing countries - Saudi Arabia, Kuwait; the United Arab Emirates and Venezuela. According to certain indications, Saudi Arabia's contribution on which depend the contributions of the other countries- would; be of the order of $4 thousand million. Thanks to this- fund, IMF would grant countries in deficit credits of a longer duration than that of the' traditional loans (usually five years) but not exceeding seven years. These credits would carry a near-market interest rate (between 5 and 6 percent). However, there should be a subsidy to reduce the cost of loans for the less favoured developing countries. It must also be rioted that certain conditions, similar to those imposed on the latest credit slices of IMF, will be placed on the provision of credit

The Fund will also examine the; possibility of raising the quotas. This would be another contribution to increasing not only its resources but also the possibilities of credit for member countries. In this connection, the developing countries have requested the doubling of quotas, but it is probable that the Fund will-work toward an increase of 25 percent next autumn.