Johannes Witteveen
Cerebral Dutch head of the IMF who negotiated the 1976 bail-out that split Britain’s Labour Cabinet
JOHANNES WITTEVEEN, who has died aged 97, was an ascetic Dutch economist who as managing director of the International Monetary Fund negotiated two emergency loans to Britain in 1976 totalling $9.2 billion that ushered in a period of austerity. The terms of the second loan split James Callaghan’s Labour Cabinet, but the medicine enabled the British economy – and sterling – to recover some ground.
Witteveen headed the IMF during a period of international financial turmoil, as rising inflation was compounded by a global oil crisis as Opec hoisted prices following the 1973 Yom Kippur War. It was Witteveen who persuaded the producers to “recycle” some of their quadrupled revenues to poorer nations struggling to pay for their fuel.
Dour and cautious, Witteveen, despite having been a successful finance minister, arrived at the IMF’S Washington headquarters in 1973 a respected academic rather than a politician. But he proved a formidable negotiator, and left the global economy far less fragile than he found it. The IMF too was stronger, not least through Witteveen’s refusal to bow to pressure from the Nixon and Ford administrations and denounce Opec.
Witteveen had an outlet for his intellectualism as one of the leading Western exponents of Sufism, the ascetic movement that dates back at least to the earliest days of Islam. One of a sizeable congregation in the Netherlands and from 1957 vicepresident of the International Sufi Movement, Witteveen prewashington could often be seen in the movement’s black robes, reading the holy books of several faiths.
Hendrikus Johannes Witteveen was born at Zeist on June 12 1921, and educated at the Erasmian school in Rotterdam, then at Rotterdam University where he took a doctorate in Economics. After a year with Holland’s Central Planning Bureau, he took up a chair at his university in 1948, holding it for 15 years.
Elected to parliament as a Liberal in 1959, Witteeveen became Minister of Finance in 1963; he was in government only two years but returned in 1967. As finance minister Witteveen was preoccupied by strains between the currencies of the Common Market’s six original members. These mainly
resulted from West Germany’s “economic miracle” which in 1969 brought revaluation of the mark and confusion to the EC’S farm price system; Witteveen chaired the meeting that sorted out the problem.
He helped devise an EC budgetary system that would enable Britain to join – as it did in 1973 – and worked to soften France’s position over the role of the sterling balances held for Commonwealth countries which became a major obstacle. At home, he stage-managed the introduction of VAT, intervening when prices rose faster than expected.
Out of office again from 1971, Witteveen joined the boards of Royal Dutch Petroleum, the fund manager Robeco and (in an advisory capacity) Unilever. Then, in 1973, he was chosen to succeed Pierre-paul Schweitzer at the IMF.
Witteveen arrived at the IMF that September with global inflation already rising. A month later a surprise offensive against Israel by Egypt and Syria on a Jewish holy day ended in the rout of the attackers.
Shortages of oil ensued, Opec cashing in to drive up an already historically high world price. Witteveen toured producing countries seeking relief for poorer nations struggling to pay, to keep the international financial system working. Rich non-producers chipped in, and $6 billion was raised.
Inflation – 27 per cent by the late summer of 1974 – and rising oil prices hit Britain hard, and the pound, pegged not long before at $2.40, lost a quarter of its value. A loan from the IMF was on the agenda by October 1975, and a first $1 billion was agreed at the end of the year, Witteveen having cleared Harold Wilson’s introduction of import controls.
In June 1976, after Callaghan succeeded Wilson, a $5.3 billion standby credit was agreed; half was used up supporting sterling, and in September the Chancellor, Denis Healey, requested the final $3.9 billion Britain was permitted to borrow. Britain, critics said, would no longer be “master in its own house”; Healey responded that the IMF would endorse “present economic policies”, but with “meaningful” improvements.
Healey set off for the IMF’S annual meeting in Manila, but dramatically turned back from Heathrow to defend the application at Labour’s Blackpool conference – allowed three minutes as a constituency delegate. In Manila he persuaded the IMF that Britain’s role in the organisation made its economy and currency too important to go under.
The Letter of Intent setting the terms was hammered out after the Manila meting. Witteveen told Healey Britain would have to agree them before the money was provided; he approved Healey’s raising Bank Rate to 15 per cent and curbing lending. Witteveen secretly visited London to press for part of the 68 per cent state holding in BP to be sold.
The loan went through Cabinet without resignations, though there was fury in the Commons when the Letter of Intent became public. It had an immediate stabilising effect on sterling, which had fallen to $1.66; further loans totalling $850 million from America and West Germany reinforced its impact.
By September 1977 Witteveen was crediting Britain with “really astonishing” success since the bail-out. Gilts rose sharply, and so did the Bank of England’s reserves. It later emerged that the public finances were in a less parlous state than imagined, and that some politically damaging cuts demanded had been unnecessary.
Witteveen dealt with requests for loans from other countries in difficulty, starting with Italy and Mexico – and pressure from Japan for a greater role in the IMF at Britain’s expense.
Globally, he saw a need for mechanisms to provide countries in deficit with the extra hard currency to avoid deflation and mass unemployment. In devising these, Witteveen received considerable help from Healey. A $10.5 billion “Witteveen Fund”, with Saudi Arabia the largest contributor, was agreed in 1977, taking effect despite a wobble over contributing by the US Congress.
Witteveen decided against a second term, and in June 1978 handed over to Jacques de Larosière, former director of the French Treasury. By now the IMF was under pressure from the Carter administration to support the dollar; Witteveen signed off with a plan to calm the markets by “freezing” large holdings of dollars in a special account.
He returned to the boardroom at Royal Dutch, Thyssen-bornemisza and Robeco. When in 1991 Nationalenederlanden launched a hostile bid for NMB Postbank, Witteveen was one of the bid’s supporters on a split Robeco board. It succeeded, and Witteveen became chairman for its first two years of the merged bank ING.
From 1979 to 1985 he chaired the Group of 30 world economic leaders. Witteveen shared Margaret Thatcher’s determination to eradicate inflation, but criticised her for relying too much on monetary policy, as this harmed the private sector. In 1983 he urged the IMF to reach an accommodation with Brazil, which was threatening to default on its debts rather than meet tough loan conditions.
Witteveen was a Commander of the Order of the Netherlands Lion and the Order of Orange Nassau. He published several books on economics and on Sufism.
Johannes Witteveen married Liesbeth de Vries Feyens in 1949. She died in 2006. They had three sons, one of whom died in July 2014 when Malaysia Airlines Flight 17 was shot down over Ukraine, and a daughter.