Articles by ISG

SDR in the Dumps ISG IT is now a little over ten years since it was agreed at Jamaica in January 1976 that the members of the IMF should collaborate in making the Special Drawing Rights (SDRs) "the principal reserve asset" of the international monetary system.

Cross-Conditionality Fears: Real or Imaginary?
ISG CROSS-CONDITIONALITY has come to the fore in recent months with the emergence of increasing concensus that the payments difficulties of the developing countries in general and in particular of those who are burdened with heavy external debts, are not amenable to the short-term adjustment measures that the Fund tends to prescribe for the borrowing countries. This has led to an increasing demand on the one hand for the Fund to show greater flexibility in the application of its conditionality and, on the other hand, for the World Bank and regional development institutions to extend on a larger scale than before of longer-term payments support to the developing countries in difficulty. Indeed, that is precisely what the US Treasury Secretary, James Baker, called for in what he termed "a programme for sustained growth" before the Seoul meeting of the Fund/Bank, to strengthen international debt strategy.

A World Monetary Conference, at Last?
ISG IN his fifth State of the Union Message to the US Congress, Ronald Reagan announced that he was asking his Treasury Secretary Jim Baker, "to determine if the nations of the world should convene to discuss the role and relationship of our currencies''. Although the US had begun co-ordinating economic and monetary policy among, as he put it, "our major trading partners", "there is more to do". Ronald Reagan couldn't be more emphatic when he observed, in the same address, "we must never again permit wild currency swings to cripple our farmers and other exporters" It is interesting to recall that the Reagan administration had been, until recently, a vigorous opponent of interfering with the foreign exchange market. At the last Economic Summit of the seven major Western industrial countries held in Bonn in May 1985, a bare nine months ago, the US was so stoutly opposed to the idea of holding a world monetary conference for working out, what the French liked to call, a new Bretton Woods agreement that it very nearly wrecked the conference. The French argued for the urgent establishment of "appropriate and stable relations for exchange rates". The European Monetary system with its fixed but moveable exchange rates had demonstrated how a closely managed system could produce greater currency and trade stability. But since the US would not be convinced and continued to swear by the virtues of floating exchange rates, indicating its willingness to consider only limited steps to make the existing system, or non-system, more stable, in the end all that the summit agreed upon was to discuss proposals in the IMF's Interim Committee "with a view to making the international monetary system more stable and more effective". A two-year study commissioned by the industrial countries, which became available soon after the summit, called for enhanced IMF surveillance of the economic policies of the industrial countries to reduce the volatility in currency swings, rejecting the notion that exchange markets had more than a limited role to play in stabilising currency rates. Economic policy convergence with the help of IMF surveillance, the report seemed to be saying, would do the job more efficiently than exchange market intervention. So it appeared that for some time to come the idea of a major conference on the basic problems with the prevailing regime had been put on ice.

Foreign Banks in South Africa ISG "THE banks have accomplished in two weeks what politicians haven't done in years", says the managing director of the Barclays subsidiary in South Africa. The reference is to the recall by the foreign commercial banks of the funds invested in the form of short-term loans made in South Africa. The reference to politicians points to the almost interminable wrangling between Western government and within the US Administration on the matter of economic sanctions in general and on the choice of sanctions, were they to be imposed, in particular.

Making Common Cause with Peru ISG IN taking the oath of office as the newly- elected President of Peru on July 29, Alan Garcia Perez made a major announcement with regard to Peru's external debt. He announced that (1) Peru would like to renegotiate the outstanding of $ 14 billion external debt directly with the banks and creditors, and (2) until the negotiations for debt restructuring were completed, the country would limit its debt servicing to 10 per cent of its export earnings.