THE ECONOMY & THE CITY
Mr. Callaghan's Money Talks
By NICHOLAS DAVENPORT
DO not envy Mr. James Callaghan in the 1 difficult role he has to play in three impor- tant financial conferences this week. The first is at New York, where, as I write, he is meeting American bankers and economists to discuss sterling and the National Plan. The second is at Kingston, Jamaica, where he has to confer with the Commonwealth Finance Ministers. And the third is at Washington on Sunday next, where he is attending the annual meetings of the Inter- national Monetary Fund and the World Bank. At all he will be very conscious of the fact that Britain, although a creditor nation on paper. is up toils eyes in debt short-term. The latest Bank of England bulletin diScloses that virtually nothing remains out of the recent $750 million credit from the Federal Reserve. The new cen- tral bank facilities which the pertinacious Mr. Henry Fowler, the American Secretary of the Treasury, has whipped up for the (final?)- defence of sterling ('the battle of wits')--all the gold Powers contributing except France—are prob- ably secured on our official dollar portfolio of $1,000 million (excluding the slice pledged for the $250 million credit from the Export-Import Bank). So we now owe $3.270 million—mostly repayable to the IMF in three to live years—and have gold and dollar reserves of only $2,584 million (1923 million). It is not exactly a position of strength to argue from.
Mr. Callaghan can honestly tell the American bankers that his credit squeeze is hurting, that his expenditure cuts are removing the strain from the construction industries, that the compulsory 'early warning' system will at last put some teeth into the prices and incomes policy and that the National Plan is proof of a determined and co-operative spirit—co-operative at any rate between Government and managements—to strengthen the industrial structure of the coun- try. Our trading balance may not be righted quickly—the sterling area overseas was running into the red even before India and Pakistan went mad—but Mr. Callaghan can claim that his measures to stop the capital outflow are having a rapid and striking effect. By encouraging foreign investment in the UK—which is the purpose of Mr. Catherwood's present mission abroad—the Government actually hopes to secure a net capital inflow by 1970. As it is American policy to sup- Port the £ whatever happens, this reassuring report from the Chancellor will be received with Sighs of relief.
But the Commonwealth Finance Ministers will have some misgivings. The Gqvernment promised in the National Plan to cut down its expenditure overseas. It undertook not only to rednce its military spending, but to slow down the rate at which aid to the developing countries had been increasing. The popular version of the Plan said abruptly: 'Our spending on aid has been grow- ing at about 10 per cent a year in recent years. This is too much while we are heavily in debt ourselves. But we are reorganising our aid policy to make each pound we can spend go further.' This apparently was as far as Mrs. Barbara Castle, the Minister of Overseas Development, could get the Chancellor to go by way of relief. _And it is very little. The onerous taxation Mr. allaghan has imposed on companies opetating uverseas must undoubtedly put a brake on pri-
vate investment in the developing countries.
By the time Mr. Callaghan arrives in Washing- ton for the meeting of the International Monetary Fund he may well be asking himself whether it is any good reforming the world's monetary system unless it is tied to aid for the poorer half of the world. We have seen at home that a growth policy can lead to the rich getting richer far more quickly than the poor get less poor. So in the expansion of international trade the rich industrial countries, taking in each other's manufactures, can get increasingly rich while the poor developing countries remain relatively just as poor. To improve their export earnings the developing countries must obtain a market for their new manufacturing industries, which the 'rich industrialised nations are loath to give, especially when they have balance of payments problems of their own, and, to make matters worse, the developing cOuntries are now finding themselves in trouble over the service of the external debts they, have incurred. (The servicing of debt in some cases takes up between 40 per cent and 50 per cent of their foreign exchange receipts.) For this reason, Mr. Harold Wilson proposed as long ago as 1963 a plan for increas- ing international liquidity which would also help the developing countries. This was on the lines
of the Maxwell Stamp plan, which proposed that the IMF should issue certificates to the developing countries—either through the Inter- national Development Association or directly through their capital markets—which could be used to buy from the industrialised countries the manufactures or services they need. As the indus- trialised countries would treat these IMF certifi- cates as the equivalent of gold—that is, as additions to their reserve• assets--this excellent plan would not only increase world liquidity, but give financial aid to those developing areas most in need. It goes without saying that there is not the slightest chance of this plan being accepted or even discussed at the Washington meeting of the IMF.
The nine plans which have been put forward for the reform of the world monetary system, from Maxwell Stamp down to the French CRU, are succinctly described in an excellent pamphlet t published by Economic and Development Re- search Ltd. on International Liquidity and the Developing World. None of them will get a hearing next week, but Mr. Henry Fowler's pro- posal for the setting-up of a joint committee to consider the next step towards reform may con- ceivably be approved. So we all proceed at a snail's pace while the developing countries chafe at the monetary bit. The pamphlet I refer to is designed to show how the various plans affect the developing countries. The French plan, it says, would deliberately keep the developing world out of the creation of assets: all the benefits would flow to the richer countries. Only the Stamp-Wilson plan goes out to help the poorer half of the world. I hope Mr. Callaghan will say a word on its behalf.
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