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International Monetary Fund. Not for Redistribution V World Payments Imbalances and the International Adjustment Process

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International Monetary Fund. Not for Redistribution V World Payments Imbalances and the International Adjustment Process v World Payments Imbalances and the International Adjustment Process Chapter III discussed the policy options and fluctuations in the intervening years. The industrial directions of the domestic investment strategy of the countries had a mixed experience with surpluses and oil exporting developing countries and their individual deficits, both collectively and individually. country performances. The discussion showed that The combined current account deficit o[ the industrial the issue of the medium-term management of oil countries for the four-year period 1979-82 is estimated revenues is closely related to the long-term considera­ to be over $5 I billion. For the non-oil developing tions of how the oil reserves are managed. These countries, the situation is considerably worse, owing to two issues, in turn. are intertwined with the way the an unfavorable combination of the low world demand countries handle their financial relationships with the for exports caused by recession, a deterioration in the rest of the world. The main concern of this chapter terms o[ trade, import limits by industrial countries, is with the management of external payments imbal­ reduced development aid, and a substantial increase in ances that result from the decisions on oil production external borrowing at abnormally high interest rates. and pricing by the oil exporting developing countries, Their combined current account deficit for the same their internal economic development, and their trade four-year period is estimated to be in excess of $343 and aid relations with the rest of the world. billion. By contrast, OPEC's estimated combined cur­ The discussion assumes the continuity of payments rent account balance of the major oil exporting coun­ imbalances, the presumed reluctance, or inability, of tries for I 979-82 shows a surplus of $249 billion, private financial institutions to deal with these imbal­ partly reflecting a rise in oil prices of about 140 per ances in the same way that they did in the 1970s, and cent and an improvement in the terms of trade of some the possibility of devising new instruments and mech­ 80 per cent in 1979-80. anisms for the oil exporting developing countries' Clearly sub�tantial by any standard, the truly dis­ choice of investment outlay. Attention will focus on equilibrating feature of these imbalances is more the OPEC members, although the analysis applies to other difficulty of redress than size. In relative terms, the major oil exporting developing countries. increase in the OPEC surplus in 1979-80 was the same as that in 1973-74. In both periods, the incre­ mental surplus was equal to 1.3 per cent of the non­ The Problem OPEC gross world product.'"' OPEC's current account surplus of $I I 5 billion in I 980 was only about 6 per The two large oil price increases in 1973-74 and cent of gross world savings (assumed to be 20 per cent 1979-80 were followed by sudden and substantial of gross world product), again almost the same relative imbalances in world external payments. Table 25 magnitude as in 1974. Measured against the size of shows the surpluses and deficits for major groups of the world's total financial markets (about $I 2,000 countries. As can be seen from the table, the current billion in 1982), OPEC's estimated cumulative surplus account surplus of the oil exporting countries rose of $432 billion in 1973-82 is Jess than 4 per cent. from $6.7 billion in 1973 to $68.3 billion in 1974, What makes the I 979-82 surpluses and deficits a and gradually declined to $2.2 billion in 1978. By global issue is, thus, not so much their actual magnitude, contrast, the current account of the non-oil developing but the need for appropriate adjustment, with less countries (excluding the People's Republic of China) deteriorated further, from a deficit o[ $I 1.3 billion in 9'J See R.S. Associates, Inc., "International Economic leuer" 1973 to a deficit of $39.2 billion in I 978, with some (Washington), March 17, 1981. 60 ©International Monetary Fund. Not for Redistribution The Problem adverse effect on world economic growth and equity The second characteristic of the oil surplus is that than in the first round, 1973-78. it is not expected to finance global deficits through There are in particular three aspects of OPEC's normal market adjustment in the medium run. The external surplus that distinguish it from the past situa­ surplus generated •by the 1979-80 oil price increase is tion. First, their financial transactions seem large likely to decline over the coming years, but imbalances compared with total international transactions. The among various groups of countries arc likely to persist. 1980 surplus of $1 15 billion, for example, was equiva­ By Fund staff estimates, OPEC may, by the end of lent to 77 per cent of the global current account deficit 1982, have left behind ten years of uninterrupted sur­ in that year. For the 1974-81 period, their cumulative pluses.'OO With the possible exception of the United surplus was equal to 53 per cent of the global deficit. 100 (Sec Table 26.) If the market for oil should continue Fund staff projections or a $1 billion surplus for 1982 have been revised downward by other an al ysts. The OPEC the next few years, this aspect of the to be sluggish in Secretariat puts the l 982 curr ent account balance :u a deficit problem may lose its significance. of $9.5 billion. Table 25. Summary of Global Payments Balances on Current A ccount, 1973-83 1 (In billions of U . S . doll a rs) 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 - - - Industrial countries 20.3 - 11.0 19.7 0.3 2.6 33.7 5.8 -40.6 - 1.0 4.0 - 10.0 Developing countries Oil exporting cou ntries:: 6.7 68.3 35.4 40. 3 30.2 2.2 68.6 114.3 65.0 1.0 3.0 Non-oil de\•eloping eountries3 - 11.3 -37. 1 -46.6 -32.4 -28.8 - 41.1 -61.0 -88.9 - 103.3 -90.0 -70.0 By analytical troup - - - - Net oil exporters -2.6 -5.1 -9.9 -7.7 -6.4 -7.9 8.5 -12.4 22.2 19.5 16.5 Net oil importers:! -9.0 -32.0 -36.8 -24.6 -22.5 -33.3 -52.5 -16.5 -81.1 -10.5 -53.5 Major exporters of manufac.tures -3.7 - 18.8 - 19.1 - 12.2 -7.9 -9.8 -21.7 -32.4 -36.0 -33.0 - 19.5 - - - - - - - Low·income countries3 -4.0 -1.5 7.6 -4.1 2.6 8.7 11.9 t6.6 1 3.1 -I 1.5 12.0 - - - - - Other nel oil importers -1.3 - 5.7 - 10.0 - 8.3 -12.0 -14.7 19.0 27.5 32.0 26.0 22.0 Byllrta - Africa• -2.1 -3.2 - 6.6 -6.1 -6.6 -9.4 -9.9 - 12.8 -t3.8 1 3.5 - 12.5 Asia3 -2.4 -10.0 -9.1 -2.5 -0.7 - 7.0 - 14.7 -24.5 -21.1 -17.0 - 17.5 Eur':Jfe 0.3 -4.4 -4.9 -4.7 -8.4 -6.6 -9.9 -12.5 - 10.1 -6.5 -4.0 - - - Mid le Eost -2.6 4.5 -6.9 -5.4 -5.1 -6.2 8.5 9.4 -10.9 - 13.0 -13.5 - Western Hemisphere -4.7 - 13.5 - 16.4 - 11.8 -8.5 -13.3 - 21.4 -33.2 -43.3 -37.0 22.5 - -39 - Total " 15 .7 20.2 8.5 8. 2 -1.2 -5.2 l.8 15.2 ..3 -93.0 77.0 Source : Fund sta ff estimates. t On goods, services, and private tra nsfers . 2 Figures ore revised acc ording to latest in£ormation. 3 Excludes data for the People's Republic of China prior to 1977. 4 Excluding South Afrka. u Reflects errors, omissions. and asymmetrie s in reported bal::mce of pa yments s ta tistics on current account, plus balance of listed groups with o1her countries (mainl y the U.S.S.R. a nd other nonmember countries of Eastern Europe and, for years prior to 1977. the PeopJe's Republic of China). Table 26. Selected Oil Exporting De•·eloping Countries: Surplus and Related International Financial Flows, 1974-81 ( In billions of U.S. dollars ) Total 1974 1975 1976 1977 1978 1979 1980 1981 1974-81 Surplus 68.3 35.4 40.3 30.8 2.9 69.8 1 15.0 70.8 433.3 0{ which, Low absorbers 43.8 )1.2 36.6 JJ.O /8.6 57.J JOJ.J 76.1 399.9 1/igll absorbers 14.5 4.2 J.7 -1.1 -15.7 11.5 11.7 -j.J 33.4 Tot�l financing through private markets 59 58 96 94 112 l SI 183 753' Global gross current account defi cits -80 -80 -80 -82 -87 -94 -ISO - 157 -810 Sour ces: International Mon et ary Fund. World Economic Outlook: A Sun•coy by th� S1nff of tile lntemati011t1/ Afonttary Fu11d, Occas ional Paper No. 9 (Washington, April 1982), and lnttrnntiOIUII Ctlpiwl MnrkeiS: Rect'm De•·t'/Opmems and Slrort·Term Prospects, 1981, Occasional Paper No. 7 (WashingtonJ AuguS-t 1981 ). l 1974-80. 61 ©International Monetary Fund. Not for Redistribution . V • WORLD PAYMENTS IMBALANCES AND THE INTERNATIONAL ADJUSTMENT PROCESS States during the 1950s and 1960s, no other country to subsequent surplus within a short time after 1973; or group of countries has maintai ned such a persistently they accepted lower income growth, higher unemploy­ positive current account in the postwar period.
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