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"Black Power will destroy everything Western Civilization has created!"588Please respect copyright.ＰＥＮＡＮＡqPOXMmkO2m
---Stokely Carmichael
The cavernous conference hall of the Sheraton Washington Hotel was filled by the financial elite of the world. One hundred fifty national delegations, speckled with brightly colored robes, were easily distinguished from the one thousand bankers dressed in their drab charcoal-gray uniform and proudly wearing their Special Guest identity badges as if they were campaign medals. The television cameras were there in force, and the atmosphere was one of tense expectation.
This was the 1984 annual meeting of the International Bank for Reconstruction and Development and the International Monetary Fund.
The ritual of these meetings had changed little in the 40-odd years since the Bank and Fund had sprung from the fertile brain of Maynard Keynes at the Bretton Woods Hotel in New Hampshire. As a rule, little official business was actually transacted at them.
And yet, on this Monday morning in December 1984, there was an edge of excitement in the air sensed, it seemed, only dully by the delegates from the industrialized world but keenly by those from Africa, a continent 11.73 million square miles long, that owed almost uncountable billions in loans from the rich West. And, besides, those billions in principal, each day millions more in interest debt piled up.
On the platform, the secretaries of the Bank and the Fund noticed an unaccustomed animation among the delegates of the developing nations, but they could see no cause for alarm. They were agreed that the Chairman, a Liberian, was not going to cause any trouble. He had accepted without a murmur the speech written for him by the Secretaries, and he had made no protest when he was told that Ronald Reagan, then President of the United States, would not open the meeting because he had been warned of an attempt by 'African radicals' to embarrass him.
Donald Regan, the US Secretary of the Treasury, a neat New Englander with a background in conservative Boston banking, took the President's place and gave a rather officious welcome on behalf of the host country, stressing the burdens that fall upon rich nations. As he was returning to his seat amidst somewhat muted applause, the Chairman fiddled with the large typed pages of his speech and then nervously pulled a folded scrap of paper out of his pocket.
"It is customary," he began, "for the Chairman now to make his address. But on this occasion I have decided to yield my time to the Honorable André Kolingba, 4th President of the Central African Republic."
Secretary Regan sopped in his tracks and then dropped into a front-row chair labelled 'next speaker' as he saw to his amazement that the President of the Central African Republic was emerging from the back of the hall. There was a gasp of surprise as André Kolingba ran up the steps and turned to face the audience. He had attended so many international meetings in the past four years of his presidency that he was known to most of the delegations.
He thanked the Chairman, in French, for his courtesy, and then apologized to his French-speaking colleagues for switching to English for the main part of his speech, "for you have heard it all before from me and today I wish to reach above all the majority of English speakers in this hall who control the levers of world economic power." Kolingba was also fully aware of the advantages of using the English language in getting on television, and he was shrewd enough to keep his speech short and unobtrusive.
"Today the world stands on the brink of catastrophe, not just the catastrophe clause contained in all our loan agreements, but the real human disaster of starving millions, of more than a billion of our fellow humans in Africa who are workless, hopeless and voiceless. It is for them that I am speaking today. I am not appealing to you for pity, but for rage---rage against an economic order that has broken down and can no longer serve the people of our planet. Nor do I appeal to your sense of guilt for having allowed this disaster to befall us, but I do appeal for action that will benefit all of mankind, not just the desperate and destitute of Africa but also the stagnating industries and static economies of the West.
"What an absurdity it is today to have idle productive resources in the West, unsatisfied demand in Africa, and a monetary system, which is meant to facilitate exchange, grinding to a halt because its wheels are clogged with debt."
The audience sat silent and intent; it was some years since they had heard such a Messianic message from this platform. Kolingba had caught the sympathetic attention of most of the delegates, as he was to do to the world at large through the media.
"Yet during the whole of my presidency the Central African Republic has been a model of rectitude, behaving according to the rules laid down for debtors by the IMF and imposing austerity on an already poor people. But with all this suffering my people have not escaped from the debt trap, and even today watch with bewilderment and mounting anger a steady flow of funds from the poor in Africa to the rich in Europe. That cannot be the purpose of any rational economic order; how can that flow be reversed?"
At these words a visible shudder ran through the rows of bankers in the auditorium. After all this sweet reasonableness from the leader of the debtors they now expected him to put the boot in and unilaterally repudiate all African debt, justifying his action by the usual non-economic arguments of justice, equity and relief of poverty. They were to be surprised for Kolingba had pitched his speech to appeal to the West rather than to the populists in his native Africa.
"We live in an interdependent world where leadership should come from the institutions of interdependence, in this instance from the IMF and the World Bank. They must adapt to the new world order that is bound to come, and shape it with their wisdom and experience.
"So let us with pride in these twin Bretton Woods institutions seize the opportunity provided by this meeting and strike from our limbs the ball and chain of accumulated debt that shackles us all whether we are Africans, Europeans, Americans, or even Chinese!"
The friendly reference to the Bank and the Fund was the high point in the popularity of his speech, being applauded by Westerners and Africans alike. But Kolingba was not just seeking popularity, he wanted action too, and his proposals would re-open the old divisions between debtor and creditor, between the West and Africa.
"I propose that we send at once to the Joint Procedures Committee a resolution that the Bank and the Fund jointly convene a Debt Conference at which international debts of Africa and its investment needs will be examined. The objective will be to fund the debts on new, appropriate terms. Until such time as the terms are agreed there should be a moratorium and freeze on all debt, official and commercial, from noon this day."
There was an angry response from many parts of the hall, and some of the bankers began to leave their seats; but President Kolingba held up his hand and continued:
"I do not presume to try to dictate what the Debt Conference will decide, but I do wish to explain why sober financiers in the North and the South believe such a move is essential. The only alternative to massive defaults in the near future is to reverse the flow of funds so that the rich West is once more investing some part of its surplus in the long-term development of Africa."
The video tape of the meeting shows that the bankers who had begun to leave the hall remained to hear the speaker out, but in the foreground that tall figure of the Chairman of the Federal Reserve (the US Central Bank) bent over to whisper to the Secretary of the Treasury and then walked unhurriedly out of the hall.
"The idea of a World Development Fund was put forward by Willy Brandt in his report some years ago, but it might equally be called a World Central Bank, a concept proposed by Robert McNamara in 1982. I urge that this Fund or Bank now be created with the duty, after it has cleared up the present chaotic debt situation, of broadly allocating funds from public and private sources to the development of Africa. These funds will contribute most effectively to economic performances if they are distributed according to development needs and capacities, not according to the political objectives of particular donor governments, nor according to the requirements of private lenders who seek good returns from a few familiar and apparently low-risk borrowers. It is for this reason that I propose presenting the World Bank and IMF as custodian and operators of the new financial machinery."
Turning to the Chairman, Kolingba said in French, "I beg to move for a voice vote immediately!"
The thunderous applause of the majority of delegates, including some from Europe and even from the platform where the IMF Managing Director clapped enthusiastically, showed how well Kolingba had pitched his appeal. At the time in the hall, and around the globe later that day on TV screens, the African seemed to have put forth a reasonable proposal which might avert the financial disaster that had been overhanging the global village for so long. But there was no applause from the bankers' wedge, though the buzz of their conversation was almost as loud. They saw it as a new way of concealing default and they were intensely suspicious of the irregular method by which a big debtor had come to put such a proposal before them.
The little figure of the Chairman was trying to gavel the meeting into silence so that he could put the resolution to a voice vote. It was the hinge of fate. if he had succeeded there is no doubt that the African resolution would in some modified form have been adopted, thus averting the crisis which was to follow. But Secretary Regan, still sitting in the chair labeled 'next speaker' seized the opportunity to take the lectern.
His first objective was to prevent at all costs a voice vote, which he would have lost, and then in a calmer atmosphere to rally the West against a proposal which he had not time to consider and which he considered had been introduced by a procedural trick. His New England puritanism was outraged as he bellowed his way to audibility: "Mr. Chairman, before you put this wholly irregular resolution to the vote I would remind you that the rules lay down that it must be in writing and circulated to the delegates."
"The US Governor is quite correct," said the Chairman. "I must ask the Governor for the Central African Republic to submit his proposal in writing before we can proceed further."
President Kolingba stepped forth and handed the chairman a piece of paper on which the resolution was typed. He also handed a copy to Secretary Regan, and simultaneously the delegates began to receive copies from a troop of messengers.
Regan was still standing on the rostrum reading the resolution when the Chairman began to put it to a vote. With mounting anger Regan interrupted once again: "When I welcomed you all here a short time ago I said that there was serious business for us to do in a businesslike manner. The proceedings so far, however, have been unconstitutional and illegal. This meeting cannot, by its vote, dispose of millions of dollars of other people's money and legalize default under a thin veil of debt renegotiation. I oppose this resolution, and if it is passed to the joint Procedures Committee I will oppose it there as well. In the very unlikely event that it is passed through that committee I will still regard it as null and void, and my government would have to give serious thought to whether it could continue to recognize these two institutions, which it founded, fostered and financed for 40 years. I know that most of the governments that have traditionally been the main supporters of the Bank and the Fund will agree with me, will vote with me, and if necessary will act with me to prevent their perversion and destruction.
"Mr. Chairman, if you proceed with a vote on this resolution I must insist that you hold a roll call vote so that we can see who are friends of the United States, believers in sound finance, and upholders of honor among nations." With that, Regan tore up his copy of the resolution and made his way back to his seat with the US delegation. In the quiet that followed the Chairman calmly announced that a roll call vote would indeed take place.
But that vote would not be a simple matter of counting hands, as the votes were weighted according to the number of capital shares subscribed. Thus Cameroon would have 300 votes, and Great Britain 26,000. The great majority of nations, including Africa's traditional benefactors, China and India, voted "Yes." However, Nigeria, the most powerful black African state, abstained. The industrialized countries voted overwhelmingly "No," as expected, but there were some surprises among them. Holland, Spain, Sweden and Norway voted "Yes" with the Africans, while France, Japan and Australia abstained.
As the tellers reached the last ten countries in alphabetical order it seemed that the resolution was bound to be carried, then came the overwhelming votes of the UK and the US, both cast against the resolution. There was, of course, no voice from the Soviet Union, who had withdrawn from the Bank and Fund during the Cold War. While the litany went on with Zaire, Zambia, Zimbabwe, the Chairman could be seen running his finger down the list of countries while the Fund Secretary next to him tapped furiously on a small calculator. The Chairman spoke first: "Out of 140 countries voting, 102 voted for the resolution...."
The sound of his voice abruptly vanished both in the hall and in the translators' booths as the Secretary of the IMF was seen on camera frantically signaling to the sound technicians and tapping his own microphone which suddenly came alive with a thumping like Don Giovanni's Commendatore. Then his deep German-accented voice read out: "Votes cast for the resolution totaled 103,250; votes against the resolution, 161,300; abstained 42,900. The resolution is therefore lost."
Regan had said that this resolution was legalized default; with the resolution defeated, what was to stop illegal default? That was the question that the bankers were asking themselves as they faded with discreet speed to the nearest telephone.588Please respect copyright.ＰＥＮＡＮＡ2VY9bcWSlw
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As soon as the crestfallen Chairman's gavel fell to adjourn the meeting till 3:00 in the afternoon Regan hurried out of the hall and down half a mile of dark and dreary corridor to his temporary office in the hotel which becomes, for 1 week a year, the HQ of over 100 finance ministers. Like some medieval monarch he was preceded by a group of men who never turned their backs on him, but kept their cameras trained on his gaunt, impassive face. A swarm of reporters asked him in vain to comment on the morning's events. Within minutes pictures of Wall Street, London, Frankfurt and even the Sheraton Washington Hotel were flashing on TV screens. But the same pictures demonstrated the immediacy and vacuity of TV as the principals in the drama were shown walking into their offices to transact their business behind closed doors, leaving commentators to speculate on the collapse of the whole banking and credit system, illustrated by old stock photos of Wall Street or the Stock Exchange, or of people running to get their money out of banks.
Regan continued in his strange procession, totally silent until he reached the door of his office. There he turned on the newsmen and said icily: "Gentlemen, I remind you that what we have just witnessed in our conference hall was the defeat of an attempt to bring down our financial system, not its victory. There will be no crash, there will be no bank failures, at least not in this country. We were prepared, and necessary action is already being taken to defeat this unprovoked aggression."
Regan slipped into his office before the stunned group of journalists could ask him to explain his astonishing statement. Once inside he acted quickly and decisively. First he asked his personal assistant (a young, outstandingly able black economics graduate from the University of Chicago) to call together the finance ministers of the G5 (the group of five leading economies---the US, Japan, West Germany, Britain and France) at 12:30, in just 3/4 of one hour. Next he asked to speak with President Reagan on the phone and formally reported what he'd done in the President's name in accordance with agreed-on procedures. In fact, he had asked Paul Volcker, Chairman of the Federal Reserve, during their whispered conversation, to launch the DDAP (Debt Default Action Plan); he needed to say nothing more. Volcker ordered that all foreign exchange dealings, all bank transfers overseas, and all external movements of funds by electronic means were to be suspended at once. Banks were to stay open for routine transactions, but withdrawals or transfers of more than $1 million would be subject to delay while being scrutinized by the Treasury. In short, international banking was frozen as was domestic banking, except for the ordinary man in Main Street who was hardly inconvenienced. In fact, the ordinary man had no desire to get his money out of the bank, as there was nowhere better to put it.
It was harder to restrain the banking system, unfortunately. Domino hysteria affected all the bankers in Washington as they sought to be the first to get out of the way of the falling dominos. Even before Kolingba had stopped speaking there was a rush of bankers on the phones in the lobbies or in their rooms. Each thought that if he could get his message through first he could arrange for the falling credit monolith to fall on his neighbor or partner, or better yet, on some foreign bank. But the US Treasury was too quick for them. On hearing the Central African Republic's president's speech, Volcker spoke to his colleague in charge of security at the meeting, and asked him to put a stop on the conference telephone exchange. By a complicated but speedy dialing method the conference exchange (which served all the phones in the conference center) was brought to a halt so that frantic bankers got interminable number-unobtainable signals. This gave the Treasury a breathing spell in which the freeze would be put fully into effect and the major banks assembled.
Months earlier, Volcker and the Undersecretary for International Monetary Affairs at the Treasury had been given detailed secret instructions on what action was to be taken with major banks in case of a red alert on default. By the good fortune of the occasion the CEOs of all these banks were gathered in the Sheraton Washington Hotel, and by noon they had been assembled to meet Volcker in a large committee room, with plenty of microphones but no telephones.
Two doors down the corridor the British and many Commonwealth bankers were holding a similar meeting with the Governor of the Bank of England, while the Secretary of the Fund, Helmut Dantzig---rather improperly for an international civil servant---invited the German bankers to meet with the Bundesbank chiefs in his office. The purpose of all three meetings (agreed between governments over the past few years) was the same: to persuade the banks under threat of penalties, to cooperate with the central banks in the freeze on all foreign and major domestic transactions, and to reassure them of the stability of the banking system. As Volcker said, "It's our good luck to have had this attack on our banking system take place when every leading bankers is in this hotel; with your advice and support we can not only fend off the attack but establish a far firmer base for an expanded and more profitable system."
Detailed arrangements were then made for committees to examine the extent of the crisis and to devise means for carrying on the world's essential business during the freeze. Above all, the bankers were asked to be ready for the consultation with their ministers and heads of their central banks so that the negotiations for a settlement could be carried on in full knowledge of what the commercial banks needed. Finally, there was an appeal not to speak to the press, as a careless or misunderstood word or phrase during these volatile days could gravely injure the system.
At 12:30 on the dot the finance ministers of the G5 took their seats in the hotel suite converted into an office for Secretary Regan. The crisis they faced was very real and very urgent, but not unexpected. Every minister around the table had long known that the billions of dollars owed by the African states would not be repaid fully or on time; now leaders of Africa had decided to take what they had so long ago requested.
The style, scale and manner of the vast flow of resources through commercial banks to the frail economies of Africa's so-called newly-industrializing countries (Algeria, Egypt, Morocco, and so forth) had been inappropriate. The acceptance of such sums on such terms by the NICs was folly, though inevitable in new nations making a dash for economic independence and finding themselves rationed by the World Bank and other development agencies, which were short of appropriately long-term, low-interest funds.
The commercial banks were not looking for good long-term development projects but for investments that would pay high dividends which they, in turn, paid to the oil-rich North African countries to ensure that a share of the OPEC surpluses were deposited in their banks. So, inevitably, when the world recession and the resulting collapse of oil prices came together in the early 1980s all the big debtors of Africa were in deep trouble. Libya, for example, was allowed to go to the very brink of disaster, and then was rescued at the last minute by the IMF, seemingly quite generously but with the traditional deflationary prescription that wrought social havoc throughout that economically stratified country. Many who had listened to Kalingba's speech that morning had been surprised at his moderation, and it is now clear that he was working to the last to avoid a breach with the Bretton Woods system.
However, Kalingba's speech and resolution had struck a raw nerve with Regan (partly because he knew what its effect would be on congress). He had, quite simply, lost his temper. He had uttered the fatal phrase "legalize default" in order to win votes for the resolution's defeat. In that he succeeded, but the cost was financial havoc.
Each minister in his office knew that in the past hour the US stock market had collapsed and the new Wall Street satellite had spread that contagion instantly around the world. The dollar had fallen against all European currencies, but both had fallen even more sharply against the yen.
World Bank bonds had plummeted; so had the shares of the big commercial banks until trading in them was suspended. Bank computers yammered hysterically to each other, but action was held up by the freeze and the fact that all the banks' CEOs were in conclave in the same hotel.
The message from the bankers' meeting was unequivocal: prevent a public default at all costs. This was what the central bankers reported to their political chiefs, the finance ministers. The meeting of the G5 ministers had to chose between declaring a victory while reaching some kind of compromise on debt with Africa, or fighting on for unconditional surrender and a return to the system.
Regan was in a very tight spot. He felt that Kalingba's coup in the morning had humiliated him personally and the United States, which he represented; he had therefore, for reasons of national pride and Congressional presentation, to make a strong riposte to avenge the insult. He also knew that he would never be forgiven by the banking fraternity if his rash words were to precipitate a general default and, as an inevitable consequence, the fall of the Western world's banking system. To avoid that he had to try for some compromise that would keep the major debtors in the system when the freeze ended.
As host Regan spoke first. He gave the G5 ministers a full account of the measures taken by the US to freeze the assets of potential defaulters, and acknowledged that at least Britain and West Germany had taken similar measures, which effectively brought the Euro-currency markets under control. But the present total freeze could not last more than a few days. He concluded by asking rather plaintively whether he could count on the ministers' support and speedy action. "If we are divided we may be defeated and our system and our prosperity totally destroyed. If we do not respond strongly and firmly to this economic Pearl Harbor we will be nibbled to death by Africa."
If he had hoped for concrete support he must've been disappointed. The first to speak was Pierre Bérégovoy, the French Finance Minister, a jocular twinkling man in his 50s who had been somewhat downgraded when the former Managing Director of the IMF, Pascal Benetarte, had suddenly been recalled to save the French economy. But, as he told the Foreign Press Club in Paris, "I have survived, a characteristic inherited from my ancestor the Abbe." In the French Minister also survived the traditions of imperial France, for as a young man, an inspecteur de finance and avowed socialist, he had helped the newly-independent French African colonies to establish their banking system within the capacious bosom of the Franc Zone, which had earned him popularity with the African successor governments.
It was this tradition which was uppermost in Bérégovoy's mind as he responded. "I have not," he said, "felt it necessary to impose a freeze on assets held in Paris by the African Franc Zone, but since my German opposite has earnestly asked me to do so in the interests of the European Monetary System, I will recommend it to my government. I must emphasize, as I have done so many times before, the need for a subsidy fund to reduce interest charges for those African nations that are the hardest hit.
"There much be some form of debt relief," he concluded. "Not of the harsh sort proposed by the Central African Republic, but sufficient to let Africa make some social and economic progress. It is because I consider this vitally important that I abstained on the vote this morning."
The Japanese Minister was next, gently putting down his West German colleague who wanted to ask questions about interest subsidies. The son of a sake brewer, Noboru Takeshita was born in present-day Unnan, Shimane in 1924 and attended Waseda University. He married prior to joining the Imperial Japanese Army to serve as an instructor during World War II. His wife committed suicide while he was away for the war, which some said made Takeshita obsessive about his composure and highly reserved about showing anger to others. After the war, he remarried, to Naoko, a distant relative, worked as an English teacher and managed a high school judo team before entering politics in 1951. Takeshita served as a local assemblyman in Shimane Prefecture from 1951. In the 1958 general election, he won a seat in the House of Representatives, joining the powerful faction of Kakuei Tanaka in the Liberal Democratic Party. He was elected at the same time as Shin Kanemaru, and the two remained close allies through their respective political careers. Takeshita eventually became Tanaka's primary fundraiser, traveling the country to garner support for the LDP's coffers. Like Tanaka, Takeshita was fond of "pork barrel" politics, retaining his own seat by bringing excessively huge public works projects to Shimane. Takeshita was the minister of finance from 1979 to 1980, and returned to the office in 1982. He was an elderly, yet well-built man who had learned good English in Japan, though he had never visited Britain or the continent of Europe until he became minister.
He had not appreciated Regan's reference to Pearl Harbor. Now he offered no excuse or explanation for not voting. Instead, without equivocation, he said Tokyo would not need to freeze the assets of any major African country. Under Japanese influence the majors had not overborrowed. However, he agreed that it would be necessary to freeze the assets of those African states which, at US instigation, had become so hopelessly overextended that they must either restructure or reschedule their debt. Japan did not intend to abandon its big investments in Africa.
The West German, Dr. Wolfgang Schäuble, spoke next. He rather pompously explained that he had been instrumental in rescheduling the East European debts in the past year, which was why he had voted against Kalingba's resolution. "But," he said, "great care must be taken to keep (the Africans) in line and not treat them as potential defaulters." He then began to explain the technical difficulties of enforcing a freeze on foreign assets under West Germany's Federal banking laws.
At this point the British Chancellor of the Exchequer, Nigel Lawson, could hold his piece no longer.
"Here we are," he said impatiently, "faced by an attempt to destroy our Western financial system, and we solemnly debate whether the banking laws of Baden-Wurttemberg prevent us from taking vital measures to defend it. As for me, I took all the proper steps just over 1 hour ago, before the markets in London closed and in time to shut the unsleeping eye of the electronic money movers before they did too much damage. I hope all of you can and will do likewise as soon as possible.
"We are, after all, the responsible ministers; we are the protectors of the Western system. If we fail to act, the bankers, bureaucrats and lawyers surely will not act. The bankers anyway are all in league with one another in both the West and Africa. Their only objective is to avoid tipping the applecart by pronouncing the dread word "default." I maintain that if Africa can't or won't pay its debts, they should be declared defaulters---with all the consequences thereunto pertaining. Our bankers will try to prevent that happening by any available subterfuge because they say it will destroy the Western banking system. We must therefore force them to accept default, and we must prove that our system cannot be knocked down by the efforts of a group of primitive and impudent debtors. We can, if we put our minds to it, demonstrate that our banking system is much more solid than a house of credit cards.
"I have 'advised' the Governor of the Bank of England to speak to the major British and Commonwealth bankers along these lines, and to ensure that they are neither soft towards their debtors nor excessively harsh towards their fellow creditors.
"If all of us here give leadership, we can restore the Western system to its pristine glory, unfettered by the so-called emergent world."
The Chancellor seemed to have finished, but there was a sting in his tail: "I can see that you chaps need to leave for your lunch meetings now, but if we intend to give such leadership and make this G5 ministerial committee the directorate of a restored economic order, let us meet again soon and often till we have agreed on a strategy; if we do not so intend then we shan't meet again because we will have been defeated."
There was silence at the end of this emotional outburst, but as the ministers rose to leave, the US secretary said quietly that he hoped to call another meeting later that day or as soon as was convenient. There was no word of response.
The Chancellor was the last to leave and as he was gathering up his papers Secretary Regan congratulated him on his final remarks. Casually he asked if he would stay on and eat a sandwich at his desk so that they could discuss tactics before the annual meeting resumed in the afternoon.
"Of course," replied Lawson, "if you discuss strategy not tactics."
Regan said that he had been informed that Chairman had agreed to call one African leader to speak on the defeat of the Central African Republic's resolution, and then he would call on the Americans or their nominee to reply before throwing the floor open. Regan was planning to make an unyielding speech but one that hinted there might be some debt relief measures if the Africans returned to the fold.
Nigel Lawson turned on his American colleague: "Offer them a way out? Impossible! You know as well as I do that they will never be able to repay these debts, but as long as they are part of the Bretton Woods system and so of our Western financial system they can use them to blackmail us into making economically foolish decisions for mistaken political ends.
"You see, old boy, by this act of aggression---and you are right to call it that---they have in fact delivered themselves into our hands. Now we can confront them, and if they do not give in we can throw them out of the system. Then we can make the Bretton Woods organization and the market mechanism worked as it was designed to---for the good of the industrialized developed world. If Africa wants to build a relationship with the industrial world it can, but not as equals, not as part of the controlling body." Lawson drew breath, but Regan didn't respond.
"I can see you are not convinced," said Lawson. "What is the reason? Should not? Would not? Or could not?"
Regan paused for a long time before replying. "Personally, I would do that; but I doubt whether we could persuade our colleagues in the G5 that we should do it."
"Then let's take the lead this afternoon and see who follows us," said the Chancellor. "The Germans will support us in the end, but they will never lead on this. The French will protest but they are much too broke to be effective or to drag their feet. The Japanese have nowhere else to go, and in the last resort I don't believe that they will ever break with you Americans."
"The Treasury Department has always had a half-assed idea about making the IMF a World Central Bank and a lender of last resort to irrigate and arid deserts," said Regan. "I have never thought much of it, and I assumed it was buried for good until the African revived the idea.
"But this plan of yours to confine the lending to the industrialized world and to make a real success of that, without worrying about computers for Hottentots---that grabs me. It's basic business sense, and by using phrases like a World Central Bank we could make it quite acceptable to the liberals and one-worlders in your country and mine. And we could save this frail dinosaur, the banking system. If you can put it across you can count on me...."
Regan was interrupted by an assistant entering and giving him a slip of paper. As he leaned over to the TV set and pressed the button labeled SCAN (Satellite and Cable Associated News), he told the Chancellor that the Senate Banking Committee had phoned to say that the Chairman, Senator Byrd of North Carolina, was going to address some questions to Secretary Regan over SCAN at about 1:45. At first the TV screen showed the tail end of an interview with a German banker who maintained that if the Africans continued to press their solution to the debt problem it must surely be followed by the collapse of the banking system.
"Silly wet," commented Nigel Larson.
Then the much caricatured face of Senator Byrd appeared, complete with pince nez and a chomped cigar. In response to questions from an unseen interviewer he gave a politically shrewd and economically vacuous account of the debt crisis. Finally he announced his own contribution to the world crisis: "My committee is submitting a resolution to the full Senate this day proposing that the United States should withdraw from the World Bank and the IMF on the grounds that they are just bolt holes for the insolvent. And I shall ask the Secretary of the Treasury to come before us this very afternoon to impart his wisdom on this matter and on our intentions."
"Oh God," sighed Regan, "to the wrong thing for the right reasons is truly the last and greatest treason. But I guess I'll now have to go up to the Hill and try to iron out this tangle...."
Regan paused in thought for a full minute and then said rather diffidently, "I would like to propose, Chancellor, that you take the lead and see who follows."
"Yes," Lawson responded, "if we can agree on what we both wan said. I would suggest that first we demand total withdrawal of the African resolution and, second, a promise to pay full interest and principal on official loans, and at least full interest on those commercial loans where there has been a negotiated restructuring. In case of failure to do so the usual penalties for defaulters are to be applied rigorously.
"I know my policy is very tough, and it will hurt a lot of innocent and poor people. But it will be effective and speedy and so cause less pain in the long run."
Donald Regan mused for a moment and then responded thoughtfully: "Africa will not accept it, of course, and if we apply sanctions they will respond with an embargo on exports to us---oil, rubber, strategic metals, coffee and chocolate. That will inconvenience a lot of people including good Republican voters." He paused, then got up and took a thick report out of his cabinet.
"We made a study of our capacity to withstand siege situations," he said, tapping the report. "It concludes that we could hold out easily for 6 months against the most effective blockade---which it surely will not be---and even for a year, though with some real shortages, particularly in oil when we have depleted the reserves built up during the recent glut. This study also looks at the least developed regions of Africa and shows that they would run into desperate trouble feeding their own people within three to four months if food supplies from the West were cut off.
"So I think we can count on coming out on top in any struggle based upon economics. We wouldn't even be weakened sufficiently for the Soviets to take any advantage.
"We went over this study last year in the National Security Council and concluded that NATO could withstand any economic blockade organized by the Soviets, even with full African support, for six to nine months, though it would demand some drastic restructuring of our economies if it persisted.
"So we certainly could win a short, sharp economic war. But I have to real worries, which I expressed in the NSC. First of all, would our national public opinions be tough enough to use the food weapon until it brought results? Second, how would our banking system survive our economic victory, or even the massive default which could be the Africans' first counterattack to our campaign?"
Nigel Lawson proceeded to enlarge on the strategy which he had outlined. He had clearly thought it through carefully over many years, and now saw a chance to implement it. It was, he explained, based on the anti-Brandt thesis. Willy Brandt in his 1980 report on North Hemisphere-South Hemisphere relations had proclaimed the doctrine of interdependence: that the prosperity of the rich and the progress of the poor countries were indissolubly linked. Nigel Lawson believe that the prosperity of the rich industrialized world was conditional on its independence from the constant drag of 3 billion very unproductive people. In his view, the progress of these poor masses depended on the private, productive sector of the industrialized world running 3rd World development on business lines, as independently as possible on its inefficient and corrupt governments.
All of this was familiar and acceptable to a conservative Republican like Regan, but Lawson's method of attaining such independence was something new and startling.
"First," he maintained, "we must get the poverty-stricken states of Africa out of the Bretton Woods system, at least out of the IMF, where they do not belong. Then these intuitions must restructured to their original use, which is to support the credit, trade and commerce of the Western world."
One crucial function of the IMF in the immediate future, Lawson went on, would be to take over and give temporary cover for those debts to the West which Africa either could not or would not honor. The IMF would pay some nominal interests on them, this maintaining them as performing assets and avoiding wholesale bank failures. The Fund would seek to recoup these outgoings by laying claim to or actually confiscating any assets of the debtors, which would be legally forfeit as the result of default."
"Isn't what you are proposing," Regan interrupted, "simply the same general funding of debt that Kalingba proposed?"
"Yes, but there is one big difference," Lawson replied. "The creditors, not the debtors, would be in charge: it would be to our ultimate benefit, not theirs. The fact of the matte is that we have all made a horrific mess of the global credit system. Too much has been lent to a nonproductive continent, and a lot of money is going to be lost. Our interest is to ensure that as few of the losses as possible are charged finally to us and that the bankruptcy---for that is what it is---is handled in a way that does the minimum of damage to our ultimately viable finances.
"All credit is a form of illusion---spending money you don't really have. To get out of a credit crunch you need the art of the illusionist and the prestidigitator, as much as the skills of the accountant and the banker. That's why politicians are needed to head finance ministries and why technocrats always fail in those posts. If you and I can only convince our bankers that help is on the way and that they need not panic we can get out of this situation without disaster."
A discreet intervention by an aide made both men realize that they had to go and make their speeches; both presentations were crucial, neither was properly prepared.
"Don't let the Senator weaken our hold on the Fund, we need the IMF. We can let him have the World Bank if he wants it," were Lawson's parting words.
"Stick to our demand that Africa pay its debts," Regan replied. "Tomorrow is time enough to decide what we will do on our side."588Please respect copyright.ＰＥＮＡＮＡ0W8E7DKFwU
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Having handed control of the annual meeting to Kalingba in the morning, the Chairman decided to work according to rule in the afternoon; it was almost as devastating.
The President of Ethiopia's most senior advisor, T. E. Desta, was to speak for the sponsors of the rejected motion and was sitting up front in the seat reserved for the next speaker when the Chairman called on the President of the World Bank to deliver his annual speech. This was strictly according to protocol, but since the speech had been written 2 weeks before and had been distributed to the press (and any others who carried to pick it up) the previous day, it got few hearers. Instead, groups of delegates conferred with each other in the wide empty spaces left by the Special Guest bankers, who were now locked in secret sessions with central bankers. The delegates hardly looked up when the Bank speech ended and the Fund speech--on debt rescheduling in Eastern Europe--began.
This unexpected interlude had some uses, however. It lowered the temperature of the meeting and gave a chance for moderation to assert itself. T.E. Desta made good use of the time lobbying the Nigerian delegation. The other main speaker, Nigel Lawson, had returned to his office to ready his thoughts, which he shared in advance with no one. He was back in his seat in the hall when the Chairman announced that the next speaker would be one of the sponsors of Kalingba's defeated resolution. The delegates immediately ceased their banter. T.E. Desta was a familiar figure to many both in the delegations and in the senior staff of the institutions who were attending the meeting; he was listened to with respect and even affection.
He used his experience at the center of Ethiopian' financial affairs during the whole of that country's forty years of (semi-) independence to show how much Ethiopia had progressed between then and now. Though population had doubled, agricultural output had tripled and industrial production had increased twentyfold. He paid generous and graceful tribute to Britain, America and the Bretton Wood institutions for their help, which had brought Ethiopia far along the path to self-sustaining growth---but had also left her with a heavy burden of debt. Today, Ethiopia was a shipwreck of a country, wracked by civil war, its fertile land exhausted; too many natural forests had been cut down. Nature was beginning to rebel.
T.E. looked around a silent and intent hall. "I have worked with the World Bank and the IMF almost since their foundation, and I have admired the way in which they have nudged the world economy in sane and helpful directions---not least in dealing with my own country. I cannot believe that these institutions will now fail in their greatest test and permit the credit system which has held together the fabric of our economic and financial life to be destroyed. Yet unless some means is found of lifting the overwhelming debt burden from the backs of the peasants who are now subsidizing the advanced economies the fabric of our global society will be torn apart, one way or another, irreparably and for all time.
"This is our last chance to find a solution which will reunite us. If we do not succeed this week then we in Africa can no longer be part of the Bretton Woods institutions. That is a political as well as a financial reality. The present economic order in which 3 billion people live in unrelieved poverty while 1 billion live in wasteful affluence cannot continue. A world so wounded cannot live. This morning the resolution put forward by the Central African Republic offered a way of healing those wounds. It was rejected; now what do the spokesmen for the affluent have to offer in its place?"
The applause that followed the patriarchal Ethiopian's speech indicated that he had won support not just from the delegates of Africa, but from many of the Western moderates as well.
There was keen anticipation as the Chairman called on Regan to reply. A murmur of surprise greeted the unexpected appearance at the lectern of Nigel Lawson.
"You may well ask why I am appearing here in Secretary Regan's place," he said, raising his voice above the mutters. "It is because he has been called before Congress to respond to their demand that the United States should quit the World Bank and the IMF because, to quote Mr. Regan accurately, 'they are just bolt holes for the insolvent.'
"The last speaker emphasized the need for realism in recognizing political pressures; I applaud that. Congress is a political reality also exerting pressure. In the past hour I have received a telegram signed by over 150 members of the United Kingdom's Parliament demanding that I stand firm against threats of default. That too is a political reality."
Thus, having played his hand, Lawson went on to explain his credentials. He had, of course, talked with Secretary Regan and he had tried to contact as many as possible of those who opposed the morning's irregular motion, but in the final analysis he could only speak for himself and his own government.
He then proceeded to embarrass his partners by developing the theme he had already expressed privately to Regan, but to no one else. He asserted that the purpose of the Bank and Fund was primarily to keep the world's most productive economies on an even keel, and that an attempt to concentrate their efforts on alleviating the lot of the poorest was counterproductive. It wouldn't make the poor any richer, and it would reduce the surplus population of the rich, making the world as a whole a poorer place.
Many in the West may have privately agreed with him, but very few wished he had spoken this publicly, and there were audible mutterings as he turned to the topic of debt relief and Kalingba's resolution.
"Even if I wanted to I could not possibly cancel the debt that is owed to my country; the people out of whose pockets that money came would not let me. That is what is meant by political will. Her Majesty's Government has always fulfilled its obligations to the developing world, through bilateral and Commonwealth agencies as well as the World Bank and its affiliates, but it did so trusting that Africa would fulfil the obligations it freely undertook in return. One of the most important of those obligations is to pay interest on debts on time and in full. This morning's resolution struck at the heart of that trust, threating to destroy the credit between borrower and lender upon which the economic cooperation is based."
Lawson paused while he looked around the hall, nodding to the few who were weakly applauding; but the coup de grace of his astonishing speech was yet to come. In a few quiet sentences Nigel Lawson drove a wedge irrevocably between the West and Africa. Lowering his voice to gain his audience's attention he said:
"It will take a long time to repair the damage done this morning. We must be assured by immediate and regular payments of outstanding debt and interest that the course of total or partial repudiation has been wholly abandoned. Only then can my government, and others, approve new loans to any who supported that resolution.
"I would address one final word to the last speaker. There is a way to heal the divisions between Africa and the West: it is to go back to sound finance of sustainable development, sustainable not by increasing drafts of other people's money, but by careful, businesslike economic policies supported by individual effort, enterprise and initiative. Such policies will win our support which this morning's threats have lost."
Slowly it sank in that what Mr. Lawson had said was that there would be no assistance from either the World Bank or the IMF to any African country that had voted for Kalingba's resolution (and the overwhelming majority had done so) until they had proved that they were able to pay off the mountain of debts under which they had been smothering for years. It could only be interpreted as a direct threat to expel the poorest 2/3 of the world from the Bretton Woods financial system.
The speech was so much tougher than anyone, West and Africa, had expected that there was stunned silence while the next speaker the Nigerian Governor, moved to the lectern. This was the well known and respected Professor Olayinka who'd been appointed Minister of Finance by Major Ayotunde when he seized power in Nigeria. The President had in fact been watching the proceedings on television in New York and had just telephoned instructions to the Minister, which Israel Olayinka read as he walked to the lectern. He spoke for only two minutes.
"This morning my delegation was the only African nation to abstain. We did so because we believed that the collision course with our great continent the West is on cannot be averted by confrontation. We hoped that the strength of feeling of those who voted for the resolution was sufficiently evident to bring the rich countries to their senses. After hearing the UK Governor's speech, it clearly has not. These past few years the World Bank has increasingly become a subsidiary of certain Western governments and their monetarist economics. It has been pursuing policies that exacerbate our dependence on the industrial countries and perpetuate our status as exporters of raw materials. We have lost our faith in the Bretton Woods institutions.
"I came here on the instructions of my head of state in the hope that we could find some way out of the crisis. But the British Chancellor of the Exchequer has made it clear the confrontation is the path the rich world wishes to follow with us. So bit it. We Africans will have no more business with this organization."
In his billowing Nigerian robes he processed out of the hall, followed by virtually all of the African representatives. As the hall emptied of African delegates two lonely figures with left----T. E. Desta and President Kolingba. Finally, they rose and walked out together.
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