World Bank-IMF meeting faces mixed outlook
Representatives of 140 member nations of the World Bank and International Monetary Fund meet here this week to survey the global economy. It's not an encouraging outlook:
* World oil supplies are disrupted.
* War continues in the Middle East.
* Recession in the United States appears not to have greatly retarded inflation.
* Population growth races hunger in the underdeveloped nations.
The World Bank and the International Monetary Fund (IMF) are the financial mechanisms by which the richer nations lend funds to less-developed countries. This week, China becomes a member.
University of Chicago economist D. Gale Johnson, in a study for the American Enterprise Institute, says that "dire predictions" of deteriorating food conditions in the 1970s in the poor countries "did not materialize." This is one of the few optimistic statements gathered here in a world where economic conditions seem particularly precarious.
In the United States a stock market rally that has raised prices more than 200 points since April halted abruptly last week when the Federal Reserve Board (Fed) shoved down on the brakes. "Yes," the Fed's economists seemed to be saying, "the recession may be ending -- one of the shortest in history. But no, the recession has had little or no impact on inflation."
Generally recessions curb inflation: slowed assembly lines and unemployed workers bring prices down. But not so far in 1979-80.The consumer price index for August showed an annual inflation rate of 8.4 percent, with the possibility of double-digit inflation by the end of 1980. Inflationary activity is still evident in money markets. Banks are active lending money, fueling the upward spiral of price-wages.
Suddenly the Fed intervened last week to raise the discount rate to member banks from 10 to 11 percent; private banks promptly raised their own "prime" rates to 13 percent. Result: the stock market shuddered and the Dow-Jones industrial average dropped 23.64 points for the week.
International and domestic matters churn in the annual meeting of the IMF and World Bank.They are the instruments for making loans to nations that have deficits in international trade or other borrowings. The IMF reports $70 billion of capital, including 100 million ounces of gold. Demand for loans exceeds assets, however, and the IMF is trying to get oil-rich Arab countries to advance funds.
But, in a diplomatic-economic standoff most Americans are not aware of, the Arabs say they won't cooperate unless the Palestine Liberation Organization (PLO) can send observers to the World Bank-IMF meeting here. No, says the IMF.Assistant Secretary of the US Treasury C. Fred Bergsten says: "The bank and IMF have not been politicized; they have stuck to their job, which is helping to reconstruct the world economy."
If the PLO observers are not admitted, Saudi Arabia is unlikely to make capital funds available. An alternative might be for the IMF to borrow on the world capital markets, something it has never previously done.
One big issue here is choosing the successor to retiring World Bank president Robert S. McNamara -- powerful head of the bank for 13 years. It is one of the most important jobs in the world.