[stop-imf] (Excerpts From) Development News Thursday, March 9, 2000 (fwd)
Robert Weissman
rob@essential.org
Thu, 9 Mar 2000 13:12:36 -0500 (EST)
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(Excerpted) Headlines for Thursday, March 9, 2000:
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- US CONGRESS SPLIT OVER REPORT ON IMF, WORLD BANK REFORMS. =
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- NO US COMMENT ON IMF CANDIDATES UNTIL CONSENSUS REACHED. =
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US CONGRESS SPLIT OVER REPORT ON IMF, WORLD BANK REFORMS.
The report of the US congressional advisory commission chaired by
economist Allan Meltzer calling for a sharp contraction in the IMF and the
World Bank unleashed a strong bipartisan reaction in Congress yesterday,
reports the Financial Times (p.7). The report was released at a press
conference on Capitol Hill yesterday, says the story, noting that two
leading Republican congressmen-House speaker Dennis Hastert and House
majority leader Dick Armey-had earlier called a press conference to
welcome the report. But it was attacked by Democratic lawmakers.
House minority leader Richard Gephardt said the Meltzer report
"illustrates an extreme neo-isolationist attitude" towards the Fund and
the Bank. "Instead of proposing thoughtful reform, the report takes a
slash-and-burn approach."
The political impact of the report is not clear, but the welcoming of it
by Armey, a longstanding IMF critic, suggests that the Republicans may try
to use it to attach further conditions on the IMF as they consider
legislation that would help fund a debt relief initiative for the poorest
countries.
The tenor of the report, which recommends sliming down the IMF to focus on
lending to pre-qualifying countries during financial crises and proposes
that the World Bank be turned mainly into a provider of grants for the
world's poorest countries, has alarmed officials at both the Bank and the
Fund, which have argued that much of the analysis on which it is based is
flawed. Moreover, officials from the two organizations suggest there has
been an attempt to portray the report as a relatively innocent effort to
bring the institutions back to their original purposes-when in fact it
would gut them and hurt many economies in the process.
The Washington Post (p.E1) notes that as reform plans goes, the report is
pretty radical. The story adds that World Bank President James
Wolfensohn, in a detailed letter to Meltzer, agreed on the need for
change. But he contested major points in the report, including the
proposal to end loans to better-off countries. Bank officials argue that
the commission misses the point. A country may have access to private
money, but it generally doesn't go into such things as schools and public
health.
The Los Angeles Times (p.C3) also reports.
In related commentary, World Bank vice president for operations strategy
Joanne Salop in Euromoney (p.98) responds to a recent article in the same
magazine by the Meltzer commission's key staffer, Adam Lerrick. Lerrick
complained that the Bank has no special credit analysis skills that
qualify it to lend to the developing world, that it has largely been
superseded by the capital markets and that it has failed to recognize this
reality.
Salop counters that in a world where almost three billion people live on
less than $2 a day, the Bank must use every tool at its disposal to carry
out its mission to reduce poverty. Poor people in developing countries
would be the losers if Lerrick's recommendations were carried out -
especially the two billion of them living in countries that would be
directly affected, Salop says. Particularly, she challenges Lerrick's view
that World Bank lending through its IBRD window "displaces" private
capital. Indeed, recent research suggests quite the reverse in countries
with good policies, lending by the Bank and other multilateral agencies
leverages larger inflows of private capital. It is estimated that 1
percent of GDP in external assistance increases private investment by an
extra 1.9 percent of GDP in countries with good economic management, Salop
points out.
The World Bank Group's purpose is to catalyze the private sector, not to
compete with it, she adds. The strategic objective of much of its lending
is to help developing countries and countries in transition to create the
right environment for their economies-and the private sector-to flourish. =
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It defies logic to believe that the Bank's lending in support of policy
and institutional reforms could be causing discomfort in the private
sector. A 1996 US General Accounting Office report on the Bank,
commissioned by Congress to investigate this very issue, found that market
participants valued the Bank's role in promoting the environment for
private sector transactions.
Meanwhile, economist Fred Bergsten, one of the three analysts who put out
a dissenting opinion on the controversial Meltzer report, said the
suggestions would undermine the world economy and hurt US economic
interests, Reuters notes. "The majority proposals would sharply increase
the risk of international economic disorder and dash the prospects of
economic development for millions of poor people," he said.
Gephardt added: "The authors of the majority report claim to advocate
reform for the purpose of strengthening the IMF and the World Bank. In
reality they aim to weaken the resources and undermine credibility of
these institutions."
World Bank chief spokesperson Caroline Anstey said the commission's
"faulty recommendations" were based on flawed data. "While we welcome
review of the Bank's work by both our supporters and our critics, we find
the results of this particular review very disappointing," she said. =20
"Based on a faulty analysis and misuse of statistics, it has produced a
set of recommendations which are also flawed and could possibly do real
harm to development and to the poor."
IMF officials also rejected the idea that the IMF should withdraw from
poverty lending in Africa and other poor countries, notes the FT. A Fund
official said most studies had shown that aid was almost never effective
when the macroeconomic framework in the recipient country was weak.
Development groups welcomed the idea of debt relief, but said the report
failed to address fundamental problems at the Bank and the Fund, which
both played major roles in efforts to resolve the world financial crisis
of 1997-1999, Reuters notes. A New York Times editorial (p.A28) says one
of the biggest and best ideas in the report is the call to cancel the
crushing debt of the world's poorest countries. If the commission does
nothing else but spur the United States and its allies to get behind this
plan, it will have accomplished a lot, the newspaper notes, adding that
the first step forward the goal of sharpening the focus of the IMF and
World Bank is to lift the debts that keep desperately poor countries
trapped in poverty.
Timothy Geithner, Undersecretary of International Affairs at the US
Treasury Department, exhibited little of the hysteria of the report's
authors in welcoming the suggestions it contained, adds Dow Jones. =20
"We're going to take a thoughtful look at all the recommendations of the
commission," Geithner told Jim Leach, Republican chairman of the House
Banking Committee. Some of the recommendations "may make sense," he
added.
The Treasury now has 90 days to consider the commission's report and draft
a response to Congress on what reforms it will urge upon the IMF and the
World Bank in the official lending community.
The news comes as Meltzer and Harvard economist Jeffrey Sachs, one of five
Democratic appointees on the 11-man panel who signed their names to the
report, write in the Asian Wall Street Journal and the Wall Street Journal
Europe that for the future, the World Bank and regional development banks
should stop the pretense of "lending" for poverty relief and instead
provide grants. The development banks should use subsidized loans only to
support basic institutional reform.
The remarks come as the Congress Daily, the International Herald Tribune,
the WSJE, Agence France-Presse, Bloomberg, La Tribune (France, p.7), the
Neue Z=FCrcher Zeitung (Switzerland), Handelsblatt (Germany), and the AWSJ
also report on the Meltzer commission's recommendations.
SHORTSIGHTED VISION FOR REFORM, OBSERVERS COMMENT
The report of the US congressional advisory commission on the reform of
the international financial institutions is infused with wishful thinking,
University of California, Berkeley professors Barry Eichengreen and
Richard Portes in the FT (p.13). It longs for simpler times, when
investors and countries were left to their own devices. Leaving the
global financial system at the mercy of the markets will be even more
hazardous in the future. Electronic trading will allow investors to react,
and overreact, even faster than before. Investors' leverage is likely to
increase still further, magnifying threats to systemic stability and
encouraging the spread of crises.
The report does not propose any meaningful institutional changes such as
collective action clauses. It relies on blind faith that the changes will
somehow come about if left to the participants. Because it ignores the
need for fundamental reform beyond the IMF and the World Bank themselves,
the report fails to provide a new vision of an international financial
architecture, Eichengreen and Portes conclude.
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NO US COMMENT ON IMF CANDIDATES UNTIL CONSENSUS REACHED.
The US will refrain from comment on candidates to head the IMF until a
consensus is reached on a single nominee, AFP reports White House
spokesman Joe Lockhart said yesterday. "We will wait to make comment
until a consensus has formed behind a particular candidate," Lockhart told
reporters pressing him to react to the emergence of EBRD President Horst
K=F6hler of Germany to become the next IMF managing director. "I am trying
to say very little about this. We want a candidate that is European, on
whom a consensus has developed in Europe and someone who possesses the
skills and the stature to lead the IMF."
The New York Times (p.C1) also reports, noting that Germany received a
generally lukewarm reception in both Europe and the US in their diplomatic
offensive to install K=F6hler. It is possible that Germany's decision to
throw its considerable political heft behind a new candidate and campaign
publicly for him will work this time. Some German allies, including the
US, are eager to avoid the impression that they are picking fights with
Germany. But it also seemed possible that Germany, by choosing a person
who does not top the lists of Europe's most qualified and politically
prominent financial officials, had set itself up for another stinging
defeat. The Wall Street Journal (p.A22) also reports.
Bloomberg also reports, saying a rift opened up within the EU over its
candidate to head the IMF, as Italian Foreign Minister Lamberto Dini said
Germany's new nominee lacked the authority required for the job. While
France and Portugal have backed him, Dini voiced reservations, saying that
K=F6hler's bid was "a little stronger than his predecessor's...but it does
not reach the prestige levels we had hoped for." The German government
earlier sought to put a positive slant on its attempts to win backing for
K=F6hler, saying US President Bill Clinton had shown a "positive interest"
in him.
In London, the British government declined to back K=F6hler and said
discussions to find the right person were continuing. "We want a European
candidate, one who will carry a real weight around the world," Prime
Minister Tony Blair's official spokesman said. "It is an important job.
It is important the right person does that job," he added, confirming that
there were no British candidates.
In a joint interview in Le Monde (France, p.4) of German Finance Minister
Hans Eichel and French Finance Minster Christian Sautter, Sautter says
K=F6hler is a worthy candidate with solid financial experience, and the
French government supports him. Sautter adds that the US already controls
the World Bank, and it is important that the first global economic power
not control the principal global body for financial regulation to boot. =20
We want to build a multipolar world, Sautter says, adding that he prefers
European diversity to American uniformity.
Commenting in an editorial, the Financial Times (p.12) says that if the
Euorpeans are not to take the imaginative step of nominating Polish Deputy
Prime Minister Leszek Balcerowicz, they should take the sensible one of
nominating former Italian Prime Minister Giuliano Amato. If they fail to
do so, the rest of the world should take the process out of their fumbling
hands.
Speculation on possible candidates to become IMF managing director is
widely reported by international media.
NEW ZEALAND ANNOUNCES HELP FOR POOREST COUNTRIES. The government of New
Zealand has announced a $6.4 million contribution toward the repayment of
debt by Third World countries, reports the New Zealand Press Association. =
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Foreign Minister Phil Goff, Finance Minister Michael Cullen and associate
Foreign Minister Matt Robson said one-off grants of $3.2 million each
would be contributed to the trust funds set up by the IMF and the World
Bank under the Heavily Indebted Poor Countries (HIPC) debt relief
initiative.
The contribution was not at the expense of other expenditure under New
Zealand's official development assistance program, notes the story. "The
urgency of addressing the issue of debt relief is highlighted by the
current crisis confronting Mozambique, one of the first countries to
receive relief under the HIPC," the ministers said in a statement. "The
total debt, public and private, of Mozambique represents over $490 a
person. Its GNP is only $10 a head." There were sound practical, economic
and humanitarian reasons for alleviating the debt of developing countries,
they said.
New Zealand forgave its last outstanding loan to a developing country,
Peru, last year, the story notes. The Jubilee 2000 Debt Action Network
today welcomed the government's announcement, and urged it to lobby for an
extension of the international debt cancellation program.
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