[stop-imf] G7 discusses reforms at IMF and World Bank

[soren@igc.org]

Monday January 24 2000
Financial Times
G7 to review IMF, World Bank roles
By Stephen Fidler and Gillian Tett in Tokyo

Group of Seven governments agreed at the weekend to a comprehensive review
of financing procedures used by the International Monetary Fund and to
examine the roles of the World Bank and the regional development banks.

The decision represents agreement to consider at least some of the reform
proposals for the IMF being urged by the US Treasury. Larry Summers, US
treasury secretary, has called for the IMF to focus more narrowly on
providing emergency support for countries in crisis and to reduce
significantly its long-term financing role in developing economies.

The agreement to look at the role of the multilateral development banks "in
the context of changing global conditions" suggests the reform agenda is
wider than previously indicated.

However, despite US calls for a strong figure to lead the reform effort at
the IMF after the retirement next month of Michel Camdessus as managing
director, little headway was made on the issue. The matter was raised in
bilateral meetings on the sidelines of the G7 meeting.

The lack of progress means Mr Camdessus will almost certainly retire without
a successor having been found. This will leave the institution under the
charge, at least for a time, of Stanley Fischer, his deputy.

There was no indication, however, that the G7 was yet ready to look outside
Europe - in whose gift the choice of IMF head traditionally resides - for a
candidate.

While Mr Fischer has been seen as a strong deputy and there have been
suggestions that he could take over until the end of Mr Camdessus's term in
2002, there were questions about whether he would carry the political weight
needed to head the organisation.
France insisted over the weekend that it had not attempted to put forward
its own, formal candidate. "We do not have an official French candidate,"
Christian Sautter, French finance minister, said, adding that he was sure
that a "European candidate of high level of confidence" would be found.

However, some German officials indicated that they had not yet won firm
backing from the French for Europe's only overt candidate: Caio Koch-Weser,
deputy finance minister. "It would be an advance if we knew exactly what the
French position was," said Hans Eichel, German finance minister.

Mr Summers said the IMF review would look at the pricing of its loans, the
question of long-term funding and the repeated use of financing by
countries. He said the Fund board took the first step on Friday by
abolishing little used procedures for financing commodity buffer stocks.

The international moves come amid expectations of more criticism from the US
Congress of the institutions. A committee, mandated by Congress and chaired
by the economist Allan Meltzer, is expected to report critically on their
role in the next few months.
A Japanese idea to revive its proposal for an Asian monetary fund - under a
different title - also received little backing. Mr Summers said the issue
was not discussed at the G7 meeting, and the US continued to have
reservations.




Monday January 24 2000
Financial Times
Little progress by the G7  (editorial)

Larry Summers, the US Treasury secretary, has argued that structural reform
is needed to promote economic growth in Europe and Japan. He has also stated
that the vacancy at the top of the International Monetary Fund provides an
opportunity to refocus the institution. On both points, he is right. It is
unclear, however, whether the weekend meeting of finance ministers and
central bankers from the Group of Seven industrial nations in Tokyo took
either much further.

These were two important topics for discussion, but they were not the only
ones. As expected, there were complex manoeuvrings over what to say, and not
to say, about exchange rates. In the end, the hosts obtained what they
wanted: a reference to the undesirable strength of the yen.

The main challenge highlighted in the G7 statement is securing a more
balanced pattern of world growth. It is particularly important, argues the
communiqué, for countries to take advantage of investment opportunities
created by information technology. Structural reform is required to improve
investment opportunities and create jobs.

But while serving as an example of remarkable economic performance, the US
economy also poses some of the largest risks to stability in the
international economy. The current account deficit, forecast by the OECD to
exceed 4 per cent of gross domestic product this year, in part reflects the
weaknesses of economies elsewhere. But it also reflects the danger of
overheating in the US economy. Domestic demand, buoyed by a highly valued
stock market, continues to outstrip the growth of domestic supply. The
current account provides a helpful safety valve. But non-inflationary
finance of the deficit relies on a continuation of the remarkably strong
foreign demand for US assets.

The G7 statement also notes the need for the functions of the IMF to reflect
the changes in the global financial landscape. It refers specifically to "a
greater focus in promoting the flow of information to markets and reducing
liquidity and balance sheets risks".

That is fine, as far as it goes. But it should go further. Mr Summers has
argued rightly that the IMF should concentrate on short-term funds to help
countries recover rapidly from financial disruptions. Logically, this would
leave the chief responsibility for long-term lending to the World Bank,
though the IMF would need to play a strong supporting role. But this raises
a host of difficult questions about the relationship between the IMF and the
Bank - questions that the new managing-director will have to address.

Replacing Michel Camdessus was not a part of the formal agenda. But until a
credible new head is found, the needed IMF reforms will remain in limbo.


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