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Financial Post, Weekly edition, Wed 29 Jun 94, page 9

Keywords: Foreign aid International finance Monetary policy World

G-7 mulls US$50B plan to boost world economy


Leading industrial nations are discussing a multi-pronged plan to pump billions of dollars into the world economy and aid Russia and the other former Soviet states, international monetary sources said yesterday.

But it is not clear whether the Group of Seven - Canada, Britain, France, Germany, Italy, Japan and the U.S. - will be able to hammer out an agreement in time for their annual summit next week.

The plan has a little bit of something for everyone, although Russia will likely be the country to benefit most. The proposal has the added benefit of making use of resources from the International Monetary Fund.

Under the plan, the IMF would act to build up foreign exchange reserves of all 177 member nations through a general issue of its artificial currency, the Special Drawing Right.

The SDR issue would strengthen the financial underpinnings of IMF member nations and give them extra borrowing power - of particular importance to developing nations and former communist countries.

IMF Managing Director Michel Camdessus has proposed a 36-billion SDR issue, worth about US$50 billion, but the G-7 is unlikely to agree to such a large allocation, sources said.

The plan would also include a "catch-up" SDR issue to a selected group of nations.

Sources said all G-7 countries support the catch-up SDR issue in principle, but they are divided over the general allocation. In a shift of policy, Washington has signalled it might be willing to accept a small, general SDR issue.

But some industrial nations, notably Germany, remain opposed, sources said. Germany's powerful central bank, the Bundesbank, sees no need to increase global liquidity via a full-scale SDR issue.

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