The Fund's Timid Look Ahead

India and other developing countries have little to gain directly from the liquidity proposals of IMF's latest report. This was to be expected. Earlier this year, one had hints of what was coming in PierrePaul Schweitzer's speech before the Federation of German Industries. IMF's attitude has been always one of caution and conservatism. Perhaps this wariness is inevitable in an organisation that aims at finding technical solutions which have to be internationally palatable and at setting up a stable institution for international short term finance.

Hence the concern to have universal, not partial, participation in any scheme for more reserve creation. Exclusion of the underdeveloped members from such a scheme would create too much embitterment; so it is better to impose technical limitations on the use of liquidity rights than to exclude them constitutionally and a priori. These limitations can be imposed, for instance, in the proposed reserve units scheme by requiring that the units accruing to the developing countries be first Used to reconstitute their conditional withdrawals position in the Fund. Fears of the advanced countries that any additional liquidity creation used to finance balance of payments deficits might, over time, mean a longterm automatic transfer of finance from the developed to the developing countries because of the chronic and structural imbalances in the developing countries' payments, must thus be allayed. For two reasons. Since distribution of units or drawing rights will be in proportion to a country's quota in the Fund, just over onequarter of additional reserves would go to the less developed. Since part of the addition must be used to reconstitute drawals on the conditional credit tranche of the Fund, according to the existing Fund positions about onehalf of the allocation to the lessdeveloped would be so absorbed. Longterm transfers if any would be therefore marginal and, in Schweitzer's words, "a small price to pay for the avoidance of political and economic dangers of dividing the free world".