The oil crisis and international economic stability

Abstract

This paper is based on the points made at a Seminar on the 18th June, 1974. It is based on an article from The Economist of the 1st June 1974 titled: "The Approaching Depression" with a sub heading "The World's Rich Countries are Digging the Foundations for a Major World Depression". The article described initially why it was thought a depression was on the way and the points made were basically these: (a) The Arabs quadrupling of oil prices has meant that a very large quantity of foreign exchange is to be transferred to the Arabs. (b) The second point is the oil consuming world will have an enormous balance of payments deficit in excess of $40 billion. (c) The third point made in the article is that dangers of an approaching slump are being disguised at the moment by the amount of stock building which is going on around the world. (d) It appears that most of the finance ministries of the world are relatively optimistic. (e) Until they become really apprehensive about the possibility of a slump most industrial countries will continue to be more concerned about their rates of inflation. (f) Any single country which dared to step out of line and tried to do the right thing on its own would find that it very quickly ran a colossal balance of payments deficit. (g) Any slump which does come will accelerate the decline in commodity prices which will hit most of all the poor countries which depend upon exports of rubber, cotton, copper, tin.