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Prudent bankers are increasingly refusing to lend a deficit-ridden country money that it may not pay back or to finance imports that it cannot afford. Quite a few banks are also turning down deposits of OPEC petrodollars or offering lower-than-usual interest rates. According to most estimates, big private banks in the West will be able to handle little more than 20% of recycling requirements in the future. New international agencies will have to be set up to do the job.
Whoever controls these agencies will gain awesome political powers—and take on major financial risks. The lenders will be able to tell the borrowing nations that, if they want money, they must change certain economic policies, and perhaps some military and diplomatic policies as well. But the lenders will also carry the enormous risks of suffering loan defaults. Nobody minds having the political powers that go with lending, but nobody wants the risks.
To help in recycling, Henry Kissinger has called for the Western countries and Japan to form a pool of $25 billion this year and perhaps another $25 billion next year. They would draw the money from petrodollar deposits in their banks and lend it out to industrial countries that have financial emergencies. For example, if a big oil producer pulled all of its money out of sterling, the British could get an immediate loan from the pool to cover their currency loss. Some Common Market nations, particularly West Germany, are cool to the Kissinger plan because they and the U.S. would be left holding the bag for any loan defaults.
OPEC countries dislike international recycling plans that deny them a major voice in determining who could borrow their money. The Trilateral Commission, an influential group of North American, European and Japanese business executives and academicians, has proposed that the industrial countries and the oil producers jointly open and operate a bank for recycling. The two sides would put up equal amounts of money and decide who could borrow it.
While this and other plans to start a joint fund for recycling hold much promise, one long-lasting problem is that recycling is really a euphemism for indebtedness, and interest payments must find their way back to the oil countries. In the 1980s some OPEC members may be earning as much from interest on their loans and bank deposits as from oil. This added wealth would give them more flexibility to reduce oil production if they want to conserve their liquid gold or to punish importers by reductions for political reasons. Meanwhile, to pay the interest, the borrowers may have to print more and more money, fueling inflation.
Conserving to Crack the Cartel
Thus, even with the best of recycling, the importing nations will be vulnerable. Says Walter Levy, the world's leading oil consultant: "The world economy cannot survive in a healthy or remotely healthy condition if cartel pricing and actual or threatened supply restraints of oil continue." In many ways, Western democracies face a wartime-like crisis, but until'lately they have reacted as they did during the 1939-40 "phony war." Only by cooperating among themselves can the importers counter the cartel's control over their destinies. Recently they have begun to make tentative moves to accomplish three