Petrodollar Compromise

U.S. and European officials last week ended their dignified but deep-seated dispute over how best to recycle the oil producers' surplus cash to countries needing emergency help in paying fuel bills (TIME, Jan. 20). The Europeans had been arguing for lending through an International Monetary Fund "facility" bankrolled directly by OPEC nations. The money would be borrowed at market rates and re-lent--on the guarantee of IMF members--more or less automatically to consuming countries according to the size of their oil-related deficits. The U.S. objected to the idea of a special IMF unit that would make loans without scrutinizing a borrower's overall economic housekeeping. It favored a financial "safety net," funded largely by oil money already flowing through the Western banking system, that would make loans on a more discriminating basis. After meeting in Washington, finance ministers of the ten leading industrial countries came up with a logical compromise: they will adopt both proposals in modified form.

For now, the basic mechanism for crisis loan making will be an expansion of the IMF's present oil facility, organized last year by Managing Director Johannes Witteveen. The Europeans had advocated borrowing an additional $10 billion to $12 billion from the oil producers for the Witteveen facility this year; but to assuage the U.S., they agreed to add only $6 billion to the $1.2 billion presently in the fund. The Europeans also agreed that oil-import levels will no longer be the sole criterion for granting loans.

Big Band-Aid. The Witteveen facility is intended to last only one year; in all likelihood, the parent IMF will begin making ordinary loans to oil consumers when the facility's funds are exhausted. By that time, however, the much bigger, $25 billion safety net designed by the U.S. to aid industrial nations should also be in operation. All 24 members of the Organization for Economic Cooperation and Development are to participate in the plan. Each time a member nation is granted a loan, all the other members would assume a set percentage of the risk. The U.S. would be the leading guarantor with about a 25% share of the net and would have the biggest say in which countries get loans and under what terms.

The peaceful end to the row was inevitable, given the severity of the economic problems facing the consuming nations. No matter how they are recycled, oil loans are just a massive Band-Aid; real relief cannot come until consuming nations find lasting ways to crawl out of their oil deficits. As Henri Simonet, vice president of the European Commission, bluntly puts it: "Recycling is only another word for indebtedness."

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