Why Bankers Have the Jitters

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Monumental Third World debts shake the IMF meeting

It was the sort of week that served perfectly to concentrate the minds of bankers and finance ministers. The occasion was the 37th annual meeting of the International Monetary Fund and the World Bank in Toronto, and while none of the moneymen faced the immediate prospect of hanging, a few must have wondered whether they were in for a bit of financial drawing and quartering. For, as unsubstantiated rumors of everything from a cash squeeze on a major West German bank to a possible pending loan default by Bolivia swirled about, the somber-spirited financiers found themselves wrestling with the difficult task of trying to shore up sagging confidence in the world banking system.

Since last month, when Mexico virtually defaulted on $80 billion it owed international banks, money managers around the globe have had a bad case of the jitters. While the Toronto meeting was going on last week, there were reports of still more Latin American financial troubles. The heads of the central banks of Chile and Argentina were summarily removed from their posts, and Argentine officials began looking for new loans so that the country could meet payments on a $40 billion debt. Jacques de Larosière, the managing director of the IMF, told the assembled moneymen in Toronto: "The world economic situation is very complex and difficult, perhaps more so than at any time in the postwar period."

Most finance ministers and central bankers attending last week's meeting urged a dramatic and prompt increase in contributions by IMF member states as a way to help boost the organization's capital reserves, from a current level of $67 billion to perhaps as much as double that amount. That would not only provide more funds for the IMF to lend out to developing countries, but would also decrease those nations' dependence upon private banks for money.

But the U.S., which as the IMF's largest single supporter contributed $14 billion to the fund during the current four-year period, has been arguing that the fund's reserves are already ample. American officials, headed by Treasury Secretary Donald Regan, maintained that if the IMF had the extra funds, it would lend them out too indiscriminately and thereby fuel inflation. Said one top Treasury Department official: "If they've got the money, there is always the pressure to use it."

Yet the grim backdrop of worrisome economic developments around the world led the U.S. to soften its initially tough stand and agree to speed up the timetable for reaching an accord on the amount each member should contribute. Also the U.S. launched a drive to set up a new "crisis fund" to be tapped in times of real emergency. Most key members seemed responsive to the proposal, which is, for now at least, still largely in the talking stage.