BT: Heads Should Roll at IMF and World Bank (fwd)

[Robert Weissman <rob@essential.org>]

SINGAPORE BUSINESS TIMES
13 Oct 1998
Heads should roll at IMF and World Bank
Neither Camdessus nor Wolfensohn are the men to lead independent
institutions
that do not favour private capital
By Anthony Rowley
MANAGING director Michel Camdessus chided journalists at the close of the
International Monetary Fund (IMF) and World Bank annual meetings last week:
"You came here expecting to see the Titanic and what you got instead was
Great
Expectations."
He implied that the press had come to Washington hoping to hear of
financial
Armageddon but instead had been disappointed by a less newsworthy message
of
hope and renewal for the system. But Mr Camdessus fooled no one except
perhaps
himself.


? <Picture: FILE PHOTO>? Time's up: International Monetary Fund's Camdessus
(left) and World Bank's Wolfensohn have lost credibility
------------------------------------------------------------------------

The truth is that the capital market-led development paradigm which the IMF
has endorsed under his stewardship, and which its sister institution the
World
Bank has actively promoted under its president James Wolfensohn, is
crumbling
around both men's ears.
It would not be surprising if neither of the two men survives its collapse
in
their present positions.
The IMF and the World Bank have risked embracing their own destruction by
endorsing what Japan's financial Vice-Minister for International Affairs
Eisuke Sakakibara lambasted last year as the "blind application of a
universal
model of capitalistic fundamentalism" by Washington and by multinational
bureaucracies. It bears repeating what Mr Sakakibara said at the 1997 Asian
Development Bank annual meeting. Asia, he declared was "resonating with
Washington-generated market expectations".
In words that scandalised many of his Western listeners, Mr Sakakibara
talked
of the latter-day "colonisation" of Asia via the promotion of neo-classical
economic paradigms.
"Euphoric expectations have been generated by inflows of foreign capital
which
are market oriented and sensitive to short-term changes," he charged.
That was in May, a full three months before the Thai crisis erupted and
went
on to spread its contagion around the globe.
Today, Mr Sakakibara's words resonate like a prophecy of doom and yet still
Messrs Camdessus and Wolfensohn cling to the notion that little has changed
and that the Washington consensus remains more or less intact.
The IMF head has allowed himself to believe that tinkering with the
"international financial architecture" can shore up the system, while the
World Bank president seems to think that a preoccupation with welfare
issues
can substitute for a sound development policy.
Both men deluded themselves into thinking they could ride the tiger of huge
private capital flows into developing countries and escape unscathed when
it
turned upon them.
Their resources are puny in relation to the size of the beast and yet Mr
Camdessus still appears to believe he can tame it by regulation.
Mr Wolfensohn occupies himself with tidying up after the carnage by talking
about social "safety nets" instead of challenging the flawed orthodoxy that
is
responsible for it.
Intimations of reality did creep into the World Bank president's remarks at
the annual meetings.
He conceded the danger of a "huge liquidity shortage" arising in the
world's
emerging markets now that the tide of private capital has ebbed to the tune
of
some US$140 billion (S$230.7 billion) a year and is every day drying up
further.
What, he wondered aloud, will happen when many of the still huge loans to
these markets need to be renewed in about a year from now?
Still, Mr Wolfensohn shows no sign of being ready to challenge the ideas
espoused by lieutenants of his friend and patron US President Bill Clinton
(namely US Treasury Secretary Robert Rubin and his deputy Lawrence Summers)
that the markets are the best arbiters of development priorities.
He probably fears that it is more than his job is worth to do that -- and
yet
someone has to expose the fact that the proverbial emperor has no clothes
and
that capital market imperialism is just not working.
That someone is highly unlikely to be Michel Camdessus. He has signed on
the
IMF to the belief by its effective political masters in Washington that
surface reforms to the international financial architecture are all that is
needed to prevent the flawed structure from crumbling.
All the talk now about improved "surveillance" and the need for
"transparency"
on the part of emerging market debtors and creditors is empty.
And the IMF's acknowledgement that capital controls may be justified in
certain circumstances is a classic case of locking the stable door after
the
horse has bolted.
The real architectural reforms needed now are much more fundamental. A new
and
strengthened institutional structure is needed to intermediate funds from
capital surplus to capital deficit countries, since the 1990s experiment
with
rapid and ideologically driven interfacing of capital markets with the
developing world has proved to be very dangerous.
The IMF and the World Bank are the most logical intermediaries -- but under
new management. The IMF must get back to objectively policing the
international monetary system without unduly favouring private capital; and
the World Bank must start acting like the long-term development-funding
institution it was constituted as, rather than meekly relinquishing that
task
to providers of private capital who have proved incapable of taking more
than
a short-term and bottom line-oriented view of development.
The writer is BT's Tokyo correspondent