A $97 Billion Bailout Fund

Some IMF members want more, and Congress may balk

With several of the world's poorest nations on the brink of economic collapse, 22 finance ministers met in private sessions in Washington, D.C., last week to determine how much more money taxpayers in the US. and other countries will make available for a bailout fund. Late in the week, those ministers, convened as the Interim Committee of the Board of Governors of the 146-nation International Monetary Fund, made their decision known. Committee Chairman Sir Geoffrey Howe announced at IMF headquarters that the fund's lending authority to less-developed countries would be increased by about 47%, from $66 billion to $97 billion.

That fell far short of the 100% increase that ministers from some of the less-developed countries had favored. It also was slightly less than Japan and some of the recession-plagued European states thought was necessary. But the committee's decision was only the first step toward what promises to be an agonizing process of getting approval for the measure from the country where the IMF was born during World War II: the U.S.

Seldom has any IMF decision been so broadly controversial. The total U.S. share of the amount to be added to the fund would be $8.4 billion. The Reagan Administration, which last summer showed no enthusiasm for a sizable increase, has swung around and now strongly favors it. Treasury Secretary Donald Regan and other top officials are less sanguine than before that the world financial system can withstand major defaults from the debt-heavy developing world. But last week's proposals will face tough going in the U.S. Congress.

In the past, U.S. participation in IMF lending has been approved almost routinely, although not without more or less standard gripes from politicians who have reservations about most forms of foreign aid. But Congress will now be asked for support at a time when domestic unemployment is above 10%. Americans are suffering through the worst economic downturn since the Great Depression, and domestic industries are thought by some to need federal assistance.

Never before, it seems, have U.S. critics of IMF lending policies had so many arrows in their quivers. Any increase in the U.S. quota, they argue, would have to be borrowed in American credit markets, adding to the upward pressure on interest rates at a time when Treasury borrowings are already ballooning to finance record budget deficits. Opponents also see increased lending as little more than a sophisticated bailout for U.S. banks that lent billions of dollars, recklessly in the eyes of critics, to Third World governments and businesses. With prices of many commodities produced in developing countries depressed, those loans have become an enormous problem.

The acrimony at a House Banking Committee hearing last week was typical. Said Jim Leach, an Iowa Republican, to a group of bank executives: "Let's face it. You've screwed up." Accordingly, some legislators will insist that approval of the IMF measure be accompanied by legislation imposing new discipline on the banks. Among the provisions of a bill expected to be introduced this week are measures to limit the amount a bank can lend to any one country and to force banks to reserve more money for loan losses when foreign loans begin to sour.

The Administration's strongest spokesman is Treasury's Regan. He points out that the U.S. drew upon IMF resources 18 times in the 1960s and six times in the 1970s, for a total of $6.5 billion. Without U.S. support now, he argues, debtor nations stand no chance at all of repaying what loans they do have, trade will dry up, and even worse times will befall the world's economies.

Regan's chief point: unless the IMF provides money, private banks will sharply curtail their lending overseas and in the U.S., and that would spell disaster on a global scale. Whether the politicians like it or not, the bankers have reality on their side. Echoing Regan, Chase Manhattan Vice Chairman William Ogden said at last week's House hearing: "The IMF is not bailing out the banks. It's bailing them in." Help from the IMF is not a means of escaping risk, said he, only one of temporarily sustaining debtors until they can pay.

More money for the IMF is, in a sense, a "jobs bill," said George Clark, a Citibank executive vice president, because it will help strengthen foreign markets for U.S. producers. That argument might not sit very well with voters who do not see how money flowing from their pockets to far-off lands will help put food on their tables. This file is automatically generated by a robot program, so viewer discretion is required.