[stop-imf] Summers criticizes IMF; Helms blasts it

[Robert Weissman]

Copyright 2000, Inter Press Service
FINANCE-POLITICS: IMF Hearings - A Spectacle on Capitol Hill

Analysis - By Abid Aslam

WASHINGTON, Mar 1 (IPS) - US Treasury Secretary Lawrence Summers' latest
defence of the International Monetary Fund (IMF) before its Congressional
critics has left it unclear whether he intends to praise or bury the global
economic watchdog.

 The world would have fared far worse than it did during and after the
"Asian financial crisis" of 1997-98 had it not been for the IMF and its
Bretton Woods sibling, the World Bank, Summers told the powerful Foreign
Relations Committee of the US Senate Tuesday.

 "These institutions help promote a more stable world," he said. "They can
help to promote vital humanitarian objectives and - let there be no doubt -
they promote changes that are central to our nation's economic and
commercial future."

 But what the Treasury chief giveth, he also taketh away.

 Summers appeared to chide the IMF, saying that the Asian crisis had
underscored the need for the agency to monitor members' economies better
and deal with problems before they grow up to become full-fledged crises.

 "The IMF needs to focus much more attention on financial vulnerabilities
such as those that played such a role in causing the crises in Asia," he
said. "This will mean, in particular, a greater focus on the strength of
national balance sheets."

 The administration of President Bill Clinton has been under pressure from
Congress and other sections of US society to push for reforms at the
182-nation IMF, the popularity of which has ebbed since the Mexican peso
crisis of 1994-95, when the agency took charge of the first in a series of
increasingly expensive international financial rescues for borrowing
countries.

 Therefore, to some extent, Summers was playing to the gallery.

 Nevertheless, the suggestion that the IMF had fallen down on its job and
that the United States was trying to right it will sting a number of ears
at the agency's headquarters in downtown Washington, a few minutes' walk
across the White House lawn from the US Treasury.

 Fund staffers recall that the United States led efforts to push the Asian
"tigers" along the path to open markets, including in banking and
investment, then turned a deaf ear to warnings of trouble.

 Asian officials supported the reforms but complained that they were
proceeding too fast, increasing their countries' vulnerability to
volatility. And they fretted aloud that their regulatory agencies simply
couldn't keep up.

 The response from the US Treasury, reported only after trouble struck, was
to sidestep the Asians' fears in a bid to win as many opportunities as
possible for US banks, brokerages and insurance companies.

 South Korean officials complained in the early and mid-1990s that market
opening was proceeding too fast to be safe. The US Treasury - then headed
by Robert Rubin with Summers as deputy - responded by dangling the carrot
of membership in the wealthy nations' Organisation for Economic Cooperation
and Development (OECD) if Seoul stayed on course.

 Thai central bank officials wrote in early 1997 to warn Western finance
officials of the coming storm and to ask them to restrain their private
financiers. Germany took note but the US Treasury blandly advised Thai
officials to leave the market to sort itself out.

 This behaviour earned Summers and his boss, Rubin, a reputation in the
press as "the dynamic duo of free capital."

 Nearly three years after the Asian debacle began, many at the IMF appear
persuaded that countries should be permitted to liberalise at their own
pace. Some Fund staffers even agree that countries should include certain
capital controls in their policy arsenal.

 Some Treasury officials have softened their stance, too, but Washington
stands firm that the goal of capital liberalisation remains non-negotiable.

 Summers appears to have reaffirmed that position by pushing proposals to
overhaul the IMF - and curb its role.

 "Our plans for reforming the IMF start from a single framing new reality
of the global financial system today, that the private sector is the
overwhelming source of capital for growth," he said.

 Flows of private capital to the developing world had far outstripped
official aid, he noted, and "we believe the IMF must increasingly reflect
that change with a great focus on promoting financial stability within
countries, a stable flow of capital among them and rapid recoveries
following any financial disruptions."

 The latest US proposals for IMF reform would narrow the Fund's remit and
therefore appear at odds with the agency's own plans and a drive by
non-governmental aid groups to give the Fund's lending operations a
development-oriented face.

 These proposals - until recently supported by US officials - have been
seen by both supporters and critics of the IMF as giving the agency a
broader mandate than it already had ascribed for itself.

 Nevertheless, Summers' plan clearly has failed to satisfy Senator Jesse
Helms, bellicose chairman of the Senate Foreign Relations Committee.

 "The IMF, as it now functions, is a destructive institution which usually
does more harm than good to countries it is purporting to help," Helms
said. "There is growing sentiment that perhaps the time has come to simply
abolish the IMF."

 Thus, Summers' appearance on Capitol Hill provided two spectacles: First,
the US Treasury chief hanging the IMF out to dry even as he defended it.
And second, Helms - leading standard- bearer in a homespun crusade against
international organisations, including the United Nations, as affronts to
US supremacy and supporter of US tobacco companies' efforts to expand Third
World markets - invoking the interests of the IMF's borrowing countries.
(END/IPS/12/EF/IP/aa/ks/00)