WORLD TRADE: Hold That Line

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In Washington's Sheraton-Park Hotel, 68 member nations of the International Monetary Fund met last week to grapple with what Xenophon Zolotas, governor of the Bank of Greece, wryly termed "numismatic plethora." The inflated phrase aptly described the basic cause of inflation—a common crisis of too much money and too few goods. Not even the Greeks had a word for the cure. Yet all knew that the fund's work in stabilizing currencies by strategic loans was one of the free world's most powerful weapons.

"Uppermost in our minds" were three "haunting questions" posed by Swedish Economist Per Jacobsson, the fund's managing director. The problems: 1) Is it possible to halt inflation in a world so anxious for expansion? 2) Can the ravenous capital appetites of underdeveloped countries be appeased without further inflation (see below)? 3) How can world currencies, undermined by inflation, be stabilized?

Top Investment. As its answer to question 3, the fund ended fiscal 1957 with a currency-supporting record that topped the entire previous total of business in its ten-year career. To halt a run on sterling in the Suez crisis, the fund gave the United Kingdom a dollar loan of $561.5 million and stand-by credit of $739 million, its biggest single deal to date. The fund gave temporary first aid to the slumping reserves of countries "with rather ambitious development programs" (Argentina, Denmark, France, India, Japan, The Netherlands). It eased seasonal trade deficits in countries with only one major export crop (Cuba, Honduras, Nicaragua, El Salvador). It backed programs in Latin America (Chile, Colombia, Bolivia, Paraguay, Peru) to simplify systems of multiple exchange rates that threaten trade stability by favoring some foreign customers at the expense of others.

Having poured out a total $1.47 billion in loans and $874 million in stand-by credits, the fund's liquid resources had been cut by 50% to $1.55 billion in a single year. It was time, suggested Director Jacobsson, to consider hiking the quotas of member nations; those of the charter nations have not been changed since Bretton Woods in 1944.

More Goods. As for the overall onslaught of inflation, Jacobsson voiced an optimism that took some of his listeners by surprise: "In some countries, at least, recent increases in the cost of living may be partly regarded as a belated adjustment to earlier inflation in that the cost-of-living indexes have shown a much smaller increase than the wholesale prices. Commodity prices have been falling for some time now on the world markets, and quotations on stock exchanges have shown considerable weakness. There are indeed some signs that inflation may no longer be dominating the whole economic pattern."

For this reason Jacobsson warned: "When the tide turns, there must be sufficient flexibility for money rates to be eased." Moreover, underdeveloped countries that rely on inflation in more advanced countries, particularly the U.S., to increase the price of their raw materials, are now doing so at their own peril. "If the countries do not stop their inflationary movements, they will probably not be able to rely on the U.S. to save them. The U.S. has arrested inflation."