Plan to boost world reserves hits stalemate: IMF chief runs up against fears of Bundesbank of new inflation threat

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The Independent Online
International efforts to boost the foreign exchange reserves of developing and former communist countries ended in disarray last night - blocked by a stand-off between the president of the Bundesbank and the managing director of the International Monetary Fund.

The IMF's key 'interim' committee failed to reach agreement after eight hours of discussions at the fund's annual meeting in Madrid.

Michel Camdessus, the IMF managing director, insisted that the foreign exchange reserves of all 175 members of the IMF should be increased to cope with a looming shortage of liquidity in the world economy.

But Hans Tietmeyer, the Bundesbank president, stood firm on his view there was no case for a general issue of new reserves, which would only boost inflation.

The stalemate wrecked hopes that an Anglo-American compromise plan would win through. This would have increased the stock of world foreign exchange reserves by pounds 15bn. Developing and former communist countries would have received pounds 7bn under the scheme, giving them ammunition with which to tackle balance of payments difficulties.

Mr Camdessus had proposed a more ambitious scheme to issue pounds 34bn of new reserves to all IMF members in proportion to their shareholdings in the fund.

Kenneth Clarke, the Chancellor of the Exchequer, said after the discussions ended that the reserves issue was dead for the duration of the fund's annual meeting. He said it was unlikely that a compromise solution could be reached in the short term.

The collapse of the reserves proposal also resulted in defeat for plans to allow Russia and other former communist countries to borrow more money from the 'systemic transformation facility' set up to help to fund the transition to a free market system.

Developing countries, in favour of Mr Camdessus's plan, blocked the STF extension in the belief that it could be used as a bargaining chip.

The meeting did, however, agree to increase the amount IMF members can borrow as a proportion of their shareholding in the fund.

Some delegates to the meeting said the debacle would cast doubt on Mr Camdessus's future at the helm of the IMF, as he had put all his authority behind a position that the Group of Seven leading industrial nations - who provide much of the IMF's funds - had already decided on Saturday to reject.

The G7 gave unanimous backing to the Anglo-American plan.

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