[stop-imf] Panel Assails IMF, WB Policies; (fwd)

[Robert Weissman]

March 7, 2000

                   Panel Assails IMF, World Bank Policies;
                   Says Institutions Failed Developing World

                   By MICHAEL M. PHILLIPS
                   Staff Reporter of THE WALL STREET JOURNAL

                   WASHINGTON -- The International Monetary Fund and World
Bank
                   have largely failed to bring financial stability or
economic growth to the
                   developing world and should sharply curtail their
lending, a special
                   advisory commission is set to tell Congress.

                   The panel's report, scheduled to be released Wednesday,
will likely fuel a
                   simmering debate over the future of the global financial
 institutions, which
                   have been criticized following the late 1990s' Asian
financial crisis. The
                   attack on the IMF comes as its member countries are
struggling to agree
                   on a successor for Michel Camdessus, who retired last
month after 13
                   years as managing director.

                   Among the recommendations endorsed by the majority of
the 11-member
                   congressionally appointed panel:

                        The IMF should stop lending to the poorest
countries, and
                        specialize in emergency lending to countries that
lose access to
                        private financial markets. Governments would have
to pre-qualify
                        for such aid.

                        The World Bank and IMF should write off all loans
to the poorest,
                        most heavily indebted countries if they implement
effective economic
                        and social policies, a proposal that goes well
beyond the debt-relief
                        plan endorsed last year by President Clinton and
his rich-country
                        counterparts.

                        The World Bank should end all financing for
countries with
                        investment-grade bond ratings or per-capita incomes
 exceeding
                        $4,000 a year. There should be limited financing
for countries with
                        incomes above $2,500. This would affect China,
Thailand, Brazil,
                        Poland and many other nations.

                        The World Bank should use grants more than loans,
and leave Latin
                        America mostly to the Inter-American Development
Bank and Asia
                        to the Asian Development Bank, both regional
lenders specializing in
                        development loans.

                        The World Bank's business-finance arm, the
International Finance
                        Corp., should stop lending.

                   "The IMF has given too little attention to improving
financial structures in
                   developing countries and too much to expensive rescue
operations," said
                   the report. "Its system of short-term crisis management
is too costly, its
                   responses too slow, its advice often incorrect and its
efforts to influence
                   policy and practice too intrusive."

                   Bitter Division

                   The advisory commission, created by Congress as a
condition for agreeing
                   to a White House request for $18 billion in new IMF
funding in 1998, was
                   bitterly divided in its conclusions. Some GOP lawmakers
were deeply
                   skeptical of the IMF and, by appointing six panel
members, saw the
                   commission as a way to generate ammunition for their
fight to trim its
                   budget and activities.

                   Some dissenters suspect its conclusions were predictable
 even before its
                   work began. The Treasury Department, which has three
months to
                   formulate a response for Congress, had no immediate
comment on the
                   report.

                   The Senate Banking, Housing and Urban Affairs Committee
plans to hold
                   a hearing on it on Thursday, but it isn't clear whether
the commission
                   recommendations will find their way into law. "The
radical proposals of the
                   majority ... are so extreme that they don't have any
significant chance of
                   finding their way into policy," said commission member
C. Fred Bergsten,
                   director of the Institute for International Economics in
 Washington and a
                   leader of the four commissioners who dissented.

                   The dissenters, who described some commission proposals
as "reckless"
                   and "cavalier," argue that withdrawing most aid from
governments that
                   have some access to private money would leave them
vulnerable to the
                   kind of investor nervousness that caused so much havoc
during the Asian
                   crisis.

                   The Clinton administration has its own ideas about
reforming the IMF and
                   World Bank, but its plans are much more limited than the
 congressional
                   commission's recommendations.

                   Last year, Treasury Secretary Lawrence Summers proposed
that the IMF
                   focus on emergency loans, eliminating most long-term
development
                   lending. Unlike the commission, however, he supports
long-term IMF
                   lending for the poorest countries, including those in
Africa.

                   Summers's Proposals

                   And in the coming weeks, Mr. Summers plans to present
his own set of
                   changes for the World Bank and the regional development
banks, a clear
                   attempt to get ahead of the more radical proposals of
the commission,
                   which is led by Allan H. Meltzer, a professor at
Carnegie Mellon
                   University.

                   "There is a wide gap between the banks' rhetoric and
promises and their
                   performance and achievements," the report said. For
instance, the report
                   said the World Bank makes 70% of its regular loans -- as
 opposed to its
                   bargain-rate loans for the poorest countries -- to 11
nations with access to
                   private capital markets.

                   Stanley Fischer, the acting managing director of the
IMF, had no
                   immediate comment on the report. World Bank President
James D.
                   Wolfensohn, however, wrote to Mr. Meltzer, the panel's
chairman, saying
                   some commission proposals are "based on a fundamental
misreading" of
                   global development challenges.

                   Mr. Meltzer couldn't be reached for comment.

                   Write to Michael M. Phillips at michael.phillips@wsj.com