Concerned IMF Seeks to Stave Off Complacency

In old western movies, there was often a scene where one cowboy turned to another and said, “It’s quiet out there. Too quiet,” just before the Indians swept over the hill.

That is the way the world economy feels to some policymakers as they prepare for Tuesday’s start of the annual meeting of the International Monetary Fund and World Bank in Washington.

Inflation in industrial countries is low. Economic growth seems to be picking up throughout much of the world. Currency markets are stable, and speculators have turned more sober.

Even if the Federal Reserve Board raises interest rates a notch Tuesday, as some analysts expect, the outlook for the world economy next year still looks good, IMF officials said.

“This is the point in time that we dig out the old adage: complacency must be avoided,” said Stanley Fischer, first deputy managing director of the International Monetary Fund.

He told reporters that something inevitably will go wrong. The problem is that nobody knows what it will be.

Fischer singled out Europe as one potential trouble spot as it struggles to launch European Monetary Union in 1999 against a backdrop of slow growth and sky-high unemployment.

“If there would be difficulties, they could be associated with the possibility that the [faster] growth we see for Europe does not happen,” Fischer said.

Princeton University professor Peter Kenen said Europe’s inability to deal with the unemployment problem raised concern about the continent’s long-term political stability.

“I have been amazed that their political systems have been thus far reasonably invulnerable to violent political reaction to high unemployment,” he said.

Another possible trouble spot cited by some analysts is East Asia, where countries such as Thailand and Malaysia are beginning to shown signs of strain from the rapid economic growth they have enjoyed in recent years.

Those strains are mainly showing up in the form of huge and potentially unsupportable trade deficits--the same sort of problem that Mexico confronted just before its currency crisis in late 1994.

“There are reasons to be somewhat concerned about overheating in parts of Asia,” said Charles Dallara, managing director of the Institute of International Finance, which represents about 220 banks and global investors.

In many ways, Asia’s problems pale against those that Mexico faced two years ago before it tumbled into recession. Fischer said growth in East Asian nations is expected to slow in 1997, but to levels--7%, 8%, 9%--that would still be regarded as a “gallop” elsewhere in the world.

With the world economy seemingly on course for a good year and financial markets looking stable, policymakers will turn their attention to less earth-shattering but nevertheless important issues relating to the IMF and World Bank.

Among those up for discussion is a multibillion-dollar proposal to provide multilateral debt relief to the world’s poorest nations. The IMF pledged last week to find the money to participate, and the World Bank is already on board.

If the program is to work, industrial nations will need to expand the debt relief they already provide to poor nations. Money will also need to be found so that the African Development Bank can take part.

Policymakers are also likely to spend time putting the finishing touches on a series of initiatives taken after Mexico’s 1994-95 crisis, including beefing up the IMF’s emergency resources for handling such problems.

“I don’t think it will be a thunder-and-lightning meeting,” one international monetary official said. “But when the markets are so stable and the winds are blowing so gently, one really has to wonder what is going to upset it.”