Powerful IMF

In their headstrong hurry to build plants atop plantations, many of the world's developing nations go for broke--and could end up there. When they get in a jam, they usually turn to a club of worldly bankers called the International Monetary Fund, set up at the Bretton Woods conference in 1944 to give emergency, short-term aid to ailing economies. The IMF has become a powerful and controversial force in the world economy, forcing upon loan-seeking nations stiff conditions that frequently rescue their economies but gall their free-spending politicians. With loans at work in 24 developing nations, the IMF swings considerable weight from the Nile to the River Plate. Last week the IMF announced that it will grant larger loans to nations whose economies suffer from temporary declines in prices of their exports--and do so with less stringent demands for internal corrective policies. The world's underdeveloped nations welcomed the news, but no one expected the IMF to relax much of its vigilance over national economies. The source of the fund's power is its $15 billion treasury, raised from 83 member nations, each of which can theoretically, at any difficult time, draw out 25% more than it put in. The advantage, of course, is that poorer nations can deposit their own soft currency, draw out hard currency in loans. Every year the IMF conducts on-site inspections of each member nation, dispatching teams of two to five expert economists to pry into budgets, money supplies and payments balances. The inspectors then pass on their reports to IMF's 18-man international board, headed by Sweden's Per Jacobsson, 69, an economist of the classical monetarist school.

Anxious for Approval. As a champion of fiscal sanity and free trade, Jacobsson's IMF frequently requires governments to reduce spending, limit credit expansion, drop trade barriers and raise taxes. Few nations willingly accede to such reforms, but the IMF can be tough. Before granting loans, it forced the Philippines to tighten credit and Egypt to devalue its pounds. It temporarily cut off credit to Turkey, Colombia and Brazil for failing to live up to its demands. Despite their balking, underdeveloped nations are anxious to get IMF's approval, aware that it opens the way for millions more in private credits and foreign aid.

Many troubled nations are avidly seeking IMF aid. Argentina, which is fighting inflation, depression and a $365 million budget deficit, has been forced to raise cigarette and gasoline taxes and promise to raise fares on its debt-ridden national railways to qualify for a $50 million IMF loan. Inflation-racked Indonesia wants $30 million, and the IMF will probably demand a stern austerity program and a slowdown in military spending.* Seeking $100 million, nearly bankrupt Brazil has pledged to cut its rate of inflation in half this year--from 60% to 30%. But that is not enough for the IMF; though most economists consider it an impossibility, the IMF is insisting that Brazil slash inflation to 10% within a year, perhaps as a bargaining tool to get Brazil to try harder.

Breaking the Bible. The IMF feels that the leaders of developing nations often put politics ahead of economics, breaking every rule in the bible of Bretton Woods to stay in office. Some responsible critics, mostly within the developing nations themselves, think that the IMF is often too rigidly academic in its demands and blind to political realities. "The IMF can tell the Argentines to fire half of their nationalized railroad employees," says Yale Economist Richard Ruggles, "but that might cause a strike that would do more long-run damage than an unbalanced budget."

Per Jacobsson and his colleagues insist that the fund's economic prescriptions work--and have some good examples to prove it. Both Britain and Canada asked IMF help to survive currency crises. Greece prospered after it revalued its drachma, and Japan boomed anew after it liberalized trade--both under IMF prodding. Spain is building a modern economy for the first time, thanks partly to a $75 million IMF loan and an IMF-dictated policy of higher taxes, lower government spending and freer trade. The IMF may have become a dictator to the world's economies, but almost everybody seems to agree that its dictates are good ones.

* Last week, at about the same time that it signed an agreement to borrow $17 million from the U.S., Indonesia also signed a contract with General Dynamics to buy three Convair 990 commercial jets for more than $20 million.

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