[stop-imf] WSJ Editorial: IMF Lender of Gasp Resort (fwd)

[Robert Weissman]

Wall Street Journal
March 8, 2000
Lender of Gasp Resort (Editorial)

                   Almost everyone with some understanding of
international
                   finance agrees that the International Monetary Fund is
a
 leaky tub that
                   needs repairs. Its performance during the Asian
currency
 meltdown was
                   abysmal and it followed that up by writing big checks
for Russia with little
                   idea of where the money would end up. A similar
complaint can be made
                   about the World Bank and its affiliated regional banks,
which profess to
                   help the world's poor, but mainly finance the non-poor.

                   But let's qualify our first sentence above. Not
everyone
 agrees that these
                   multilateral institutions need fixing. Several
prominent
 Democrats in the
                   U.S. Congress don't agree. U.S. Treasury Secretary
Larry
 Summers, who
                   played a key role in both the Asian and Russian
fiascoes, doesn't agree.
                   And economist C. Fred Bergsten, one of the Democrat
selectees for the
                   commission that has just come up with repair
recommendations, obviously
                   doesn't agree, judging from his dissenting opinion. But
since Mr. Bergsten
                   didn't spend much time at commission hearings, perhaps
he hasn't
                   considered all the arguments.

                   The commission, which issued its report yesterday, was
set up by
                   Congress as a condition for voting a further $18
billion
 contribution to the
                   IMF in 1998. The 11-member bipartisan group headed by
the respected
                   economist Allan Meltzer voted eight to three in favor
of
 the majority
                   report. Jeffrey Sachs , a Harvard specialist in
development economics
                   appointed by the Democrats, voted with the majority. We
understand that
                   he already is getting flack from Democrats in the
Administration and
                   Congress.

                   The report (see the article by Messrs. Meltzer and
Sachs
 alongside) is a
                   well-thought-out document prescribing changes to make
the IMF a serious
                   institution commensurate with the enormous influence it
exercises over the
                   world's money and national economic policies.
Primarily,
 the study
                   proposes that the IMF go back to its original Bretton
Woods role of
                   extending short-term loans to countries in
balance-of-payments difficulty,
                   and get out of the long-term credit business. Countries
seeking IMF credit
                   would have to qualify in advance, over a five-year
period, mainly through
                   financial sector reforms. The institution has been
criticized for years, quite
                   legitimately, for attaching conditions to loans that
are
 often
                   counterproductive. The ones that are not often are not
met by borrowers.

                   Even the estimable Stanley Fischer, who actually runs
the IMF from his
                   second spot in the managerial hierarchy, agreed with
many of the
                   recommendations during his testimony to the commission.
He disagreed,
                   however, on some significant issues, most particularly
the substitution of
                   pre-conditions for the traditional "conditionality."

                   As to the development banks, it has been an open secret
for years that
                   most of their lending goes to mid-level countries, not
the poorest. The
                   commission argues that these banks should get back to
the business of
                   helping the one-third of the world's population that
lives in poverty.
                   Development projects in middle income nations such as
South Korea or
                   Brazil can be financed, if they are viable, through
private sources.

                   Now, of course, the development banks are wary of such
                   recommendations because they know full well that
financing projects in
                   countries that really need them is riskier than in the
countries that don't.
                   They also understand the old political rule of
universality, that the more
                   people you help, whether they need it or not, the more
political support
                   you have.

                   The main thrust, indeed, of the Meltzer commission
report is to take the
                   important activities of the IMF and the development
banks out of politics.
                   And that's why Democrats in the Clinton Administration
and Congress are
                   trying to shoot it down before it gets off the ground.
Multilateral lenders
                   have been useful politically for years. The U.S.,
because of its large
                   contribution to these agencies, has had a powerful
influence over their
                   decisions. The Clinton Administration didn't arrange
loans for Russia
                   because Russia was a good risk, but because it was
hoping to gain
                   influence useful in such matters as inducing Russia to
play ball, to a degree,
                   in the Balkans.

                   It is already clear that the commission report will be
turned into a
                   year-2000 campaign issue. The Democrats will claim that
a right-wing
                   Congress wants to cut off the world's poverty-stricken
masses without a
                   sou. The fact that the development banks do little now
for those masses
                   will get smothered in liberal rhetoric. Similarly
smothered will be evidence
                   that IMF interventions since 1994 in places like Mexico
and Indonesia,
                   with their focus on currency devaluations and the
bailout of international
                   banks, did a lot to send large numbers of middle-class
aspirants back into
                   poverty.

                   We'd hate to see the Meltzer commission report falls
victim to
                   simple-minded partisanship. The group really did come
up
 with useful ways
                   to fix these multilateral institutions. As the old
saying goes, maybe next
                   year.