Abstract

"From rivals to partners? The IMF and commercial banks’ role in petrodollar recycling, 1971-1985"

Samuel Beroud, Ronald Reagan Institute (samuel.beroud@unige.ch)

This paper will explore the evolution of the division of labor between the IMF and Western banks for petrodollar recycling and debt financing in the 1970s and 1980s. It will argue that the IMF sought to assume new responsibilities after losing its role as the guardian of stable exchange rates during the collapse of Bretton Woods in the early 1970s. After the first oil shock in 1973, the organization realized that it could play a critical role in petrodollar recycling and the long-term adjustment of balance of payments.
The paper will explain how this ambition initially conflicted with the geopolitical strategy of the US government vis-à-vis OPEC and the interests of international commercial banks, which eventually attracted the bulk of petrodollars. However, in the late 1970s, officials from Western finance ministries realized that cheap commercial credits were slowing down the adjustment process. Meanwhile, commercial banks started to fear that borrowing countries would be unable to repay their credits and sought official protection. The IMF was reluctant to play this role and even more reluctant to share its information with commercial banks.
Finally, the paper will analyze how the debt crisis of the 1980s contributed to redefining the relations between Western governments, the IMF, and commercial banks. It will examine the formulation of G7 strategies to deal with debt problems. The IMF was designated as the central authority in overseeing the policies of debtor countries. Was that the desire of the IMF itself or that of the finance ministries and commercial banks?