The strains of disinflation -- prelude to world upturn?
''Keep the faith, baby!''
That, in effect, is what world economic leaders have been advising politicians as the world economy has suffered from the strains of disinflation.
''This transition involves considerable hardships and strains, both domestically and internationally . . . ,'' Jacques de Larosiere, managing director of the International Monetary Fund, said earlier this month in Toronto.
In the industrial nations, the process of battling inflation has meant increased unemployment and business bankruptcies, plus a huge amount of unused capacity in industry.
But the policy is already paying off in reduced inflation and lower interest rates. If the world is long-suffering and patient, the reward will be a decade of greater economic stability and continued growth, many financial leaders maintain.
For example, Sir Geoffrey Howe, chancellor of the Exchequer in the United Kingdom, told the IMF-World Bank annual meeting in Toronto: ''We must continue to pursue responsible financial policies. This means a firm but flexible approach to monetary policy, taking into account all monetary indicators and avoiding excessive tightness or easing of financial conditions. And it means that we must continue to reduce budget deficits, putting further downward pressure on interest rates.''
In the meantime, the end of the years-long inflationary binge has had several effects:
* Real growth in gross national product, the total output of goods and services, in the industrial countries as a group fell to only about 1 percent in both 1980 and 1981. In 1982, it will be around zero percent.
Most economists figure the economies in the US and Western Europe stopped diving downward by spring, but recovery is proving slower in coming than anticipated. It's estimated by the Organization for Economic Cooperation and Development that about 8 percent of the labor force is unemployed in the noncommunist industrial nations. In the US, the unemployment rate was a high 9.8 percent in August. The OECD calculates that by 1983 the number of jobless could reach 32 million in its industrial nation members, or 9 percent of the labor force.
* Lenders are now getting a real return on their money. Borrowers - individual, corporate, or national - can no longer rely on inflation to wipe out their debts or policy mistakes. Many individuals in the US are delinquent on mortgage or other debt payments. Corporate bankruptcies have climbed to rates not seen since the Great Depression of the 1930s. Several nations in Latin America, East Europe, or elsewhere have rescheduled debts.
* The tables have turned in favor of savers. Inflation in the major industrial countries topped at almost 13 percent in mid-1980. Today consumer prices in these 10 nations are rising at ''only'' 7 percent, a sharp improvement. Interest rates remain well above the inflation rate. US three-month Treasury bill rates have declined from around 13 percent at midyear, way higher than the 6 or 7 percent inflation rate, to about 8 percent now. Rates around the world have been slipping, too.
* Most industrial nations are adding greater fiscal stringency to the relatively tight monetary policies they introduced as far back as 1979 and 1980.
In the US, the Reagan administration managed to curb the growth of federal spending, from 16 percent in 1980-81 to 11 percent in 1982, with the expectation the growth rate might drop down to 6 to 8 percent in 1983.
In West Germany, the coalition of Social Democrats and Free Democrats has just broken up over the issue of budget tightening. In France, the Socialist-Communist government of Francois Mitterrand was forced to restrain its burgeoning deficit early in the summer because of the pressures on the franc in foreign exchange markets.
Several governments have been trying to limit the size of government. Beside the US, these include the United Kingdom, West Germany, Belgium, the Netherlands , and some of the Scandinavian nations.
* Labor, suffering from high unemployment, has been under strong pressure to moderate its wage demands. In the US, auto workers, teamsters, and others have been forced to give back some of their wage and other benefits to hard-pressed industries. Wage increases in the US averaged only 6 percent in the first half of 1982.
Said the IMF's Mr. de Larosiere: ''The basis is being laid for a restoration of confidence and the revitalization of economies - the conditions for a return to sustainable growth.''
Citibank has not even been scared by the Mexican debt crisis. The financial system, the bank states in its Economic Week, ''is a lot more resilient'' than many say. The New York bank points out that the system had survived the collapse of the Bretton Woods system of fixed exchange rates in the early 1970s, the quadrupling of oil prices in 1973-74, and their subsequent doubling in 1979.
The annual report of the General Agreement on Tariffs and Trade, headquartered in Geneva, described the current international economic scene ''in most respects'' as the worst since the 1930s. But it seems likely the international financial system will survive this crisis as it has those of the past decade.