World Economy: Turnabout

Under the great crystal chandeliers of Vienna’s Neue Hofburg palace finance ministers and bankers from the 73 Western, African and Asian nations belonging to the International Monetary Fund last week grappled with a problem inconceivable only five years ago. The underlying—though unconfessed—preoccupation of the Vienna meeting; how to keep the U.S. dollar from being bullied by the newly muscular currencies of France, West Germany, Italy and Japan.

The Long Line. The 14-year-old I.M.F. acts as a sort of international monetary pawnbroker. When a nation finds its world business so bad that it does not have enough foreign currencies on hand to pay its international bills, it takes its own money to the Fund and exchanges it for the foreign currency it needs. But it must redeem its money within three to five years, and in the meantime is obliged to accept advice from I.M.F. experts on how to steer its economy out of trouble.

So far, 46 members have called on the Fund for help, to the tune of $6 billion. Until now, the I.M.F.’s $15 billion resources, made up of contributions by member nations in proportion to their wealth, has been more than enough to answer all calls for rescue. But in the last five months so many nations have lined up for help that business at the pawnshop has already approached a record $2 billion, nearly twice the previous high of $1.1 billion for all of 1957. The biggest drain came in August, when Britain alone withdrew $1.5 billion in nine currencies to shore up the shaky pound.

So far the U.S. has never had to call on the I.M.F. for help. But as the economies of Western Europe and Japan have surged ahead, the dollar’s long dominance of free-world finances has begun to fade. Last year a sudden European shift out of dollars produced a near run on U.S. gold reserves; last week declining exports and increasing imports threatened the U.S. with a 1961 balance-of -payments deficit that may reach $2 billion, considerably worse than originally expected. No one at Vienna suggested that the dollar was in immediate danger, but everyone was aware that one day it might be. And should the U.S. ever be forced to pawn dollars, the huge sums involved might be too much for the Fund as now constituted.

Don’t Feed the Engine. Even a hint that the international monetary rescue agency might not be able to do its job weakens confidence in the currency structure of the entire free world. Keenly aware of this,I.M.F. Managing Director Per Jacobsson of Sweden went to Vienna determined to wrest from the most prosperous member nations a pledge to put up the money for a special $6 billion reserve that the Fund could call on in a crisis. Since all I.M.F. nations have a stake in the health of the dollar—a large percentage of their own reserves are in dollars—they readily agreed to the reserve in principle. But several Western European countries, led by France, clamped strict limits on their participation, declared that they would have to give approval in each case before any of their pledged funds could actually be drawn on.

Even on these terms, the outcome of the Vienna meeting marked a significant step toward stabilizing the international economy of the free world. But for the representatives of what Europeans like to call “the Anglo-Saxon bloc,” the meeting was a sobering experience. After years of urging other countries, particularly France, to put their economic houses in order, U.S. and British delegates had to sit in silence as French Finance Minister Wilfrid Baumgartner delivered a pointed lecture on the dangers of overly easy international credit that lulls nations into putting off the cruel day of reckoning with a runaway domestic economy. France, declared Baumgartner in the unkindest cut of all, would never consent to see its money used to feed “an engine of inflation” in other nations.