Re: SDRs

[ECOELT@xxxxxxxxxxxxxxxx]

On October 3rd, Doug Henwood raised a question about SDRs that didn't
bring any response, judging by my quick perusal of over 400 messages
waiting for me on my return from 3 weeks in California. The following
day, the WSJ published a report on the "blocking" of IMF aid plan
via the creation of SDRs for Russian and Eastern Europe at the annual
IMF meetings in Madrid.
	Led by Indian and Brazil, developing countries rejected a
take-in-or-leave-it offer from the G-7 countries to create about
$24 billion of SDRs, the first emission since the last SDR distribution
in 1981.
	"The deadlock left IMF Director Michel Camdessus somewhat
battered.  Despite resistance from the U.S. and Germany, he had
promoted a plan to create $54 billion in SDRs to be distributed
among ALL IMF members."
	Initially, the U.S. Treasury had opposed the creation of
ANY SDRs.  According to Richard Erb, Deputy Managing Director
of the IMF, as I reported to Pen-L on March 20th, this position
was apparently related to Congressional legislation in 1982 which
required Congressional approval for any increase in U.S. contributions
to the IMF.
	However, by the time of the G-7 meetings in Rome, Bentsen
was pushing, in the name of "equity," for a $24 billion package
for Eastern Europe.  These countries have only recently joined
the IMF and hence didn't receive any of the earlier distribution
of SDRs.
	"The Camdessus plan would have required a declaration by
the interim committee that the world economy is short of liquidity,
a step that the Germans, in particular, were unwilling to take."
German Finance Minister, Theo Waegel, said: "As markets are
worried about inflation, it would be the wrong signal."
	SDRs would allow Russia to borrow dollars unconditionally
and at interest rates lower than they would otherwise be.
	Generally speaking, monetarists and deflationists (who
believe that inflation is always related to the supply of money)
would opposed the creation of SDRs, while non-monetarists or
Keynesians would approve.
	The issuance of SDRs began in 1969 and represent a weak
attempt to create international fiat money. However, SDRs do
not circulate outside of central banks.
	Since only $28 billion have been created so far, these
recent proposals would seem to represent a major change. France
seems to be supporting the Indian and Brazilian position with
Germany on the opposite side. Thus, the Bundesbank, having
weakened the Maastricht agreement, are continuing to play their
usual negative role.   Lynn Turgeon  ECOELT@xxxxxxxxxxxxxxxx