Fund Failure

The International Monetary Fund was founded in 1945 with lofty goals and an $8 billion kitty. The goals: complete removal of strangulating trade restrictions by March 1952 and stabilization of world currency. But last week, as the fund's governors gathered in Washington for their annual meeting, the $8 billion was still virtually untouched, the goals far distant.

Last week's meeting started with a hopeful, high-sounding statement from Harry Truman: "I am sure . . . that none of the members of the fund will [try] to justify restrictions on trade and exchange which are not actually needed." But hardly were those words out when Britain's Sir George Bolton brought the other delegates back to earth. There was "very little chance," said he. of any relaxation of Britain's trade restrictions next year or in 1953. More likely, he said, the restrictions would be tightened.

Short-Term Uselessness. Why had the fund failed so dismally? The basic trouble was that in the dim and distant days of Bretton Woods, the world's leading economists foresaw no such serious dollar shortage as later developed. Instead, they visualized a series of sharp, short fluctuations in the trade balances of the participating nations--just temporary deficits resulting from a bad crop here, a bad tourist season there. Ailing nations could be tided over these rough spots with loans, though Congress stipulated that the loans could only be for short terms. Hence, when the long-term dollar crisis arose, the billion was almost useless. The fund's last loan, made 18 months ago to Brazil, was for only $28 million. Nevertheless, with the help of the Marshall Plan and devaluation by 36 nations, some measure of stability had been reached last year by the world's currencies. The Korean war threw them out of kilter again.

Twice-Told Tale. No one was harder hit than Britain. With raw-material prices soaring, the average price of Britain's imports jumped 35%, while the price of her exports rose only 14%. The result was that Britain's hard-earned dollars began to dwindle; so far this year, Britain's trade deficit has totaled $2.2 billion, twice the 1950 figure. Said Chancellor of the Exchequer Hugh Gaitskell gloomily: "The dollar problem is with us again."

Britain also faced a problem in other currencies. In August Britain paid out $183 million more in European currencies than she took in. As the bad news accumulated, the British pound slumped more than 10% to $2.45 in the free markets (v. the official $2.80); devaluation talk was in the air again, and London's Financial Times noted that Britain's financial outlook was the worst since the war.

Time to Change. Under these conditions, Britain could hardly relax trade or currency restrictions. Since Britain was the banker for the sterling bloc, it was unlikely that other nations in the bloc could relax their restrictions. Despite these facts, the International Monetary Fund (with a hefty nudge from the U.S.) last week decided to keep stiff limitations on the use of its $8 billion; loans would be made only to nations which make an effort to loosen restrictions.

Plainly, the fund was of little use. Many bankers thought that it should either revise its charter drastically to deal with the current exchange problems, or merge with its sister, the World Bank, which could put the $8 billion to work to shore up the economies of the fund's members.

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