[stop-imf] Strengthen the IMF, Don't Scrap It, Says Business

[Robert Weissman]

Title: FINANCE: Strengthen the IMF, Don't Scrap It, Says New Report

By Gumisai Mutume

WASHINGTON, May 17 (IPS) - Strengthening, rather than scrapping
the International Monetary Fund (IMF) should be the main thrust of
current efforts to reform the Bretton Woods institution, says a
report released by business leaders here Wednesday.

The report, "Improving Global Financial Stability" was produced by
the Committee for Economic Development (CED) and says that when
international financial crises occur, as they often do, a strong
international backstop is needed, which is what the IMF should be
re-structured to do.

"In pointed contrast to recent radical proposals to reinvent the
IMF, our report instead offers a set of improvements that build on
its successes," says the report's co-chair, George Russell,
chairman of asset management consultants, the Frank Russell
Company.  "We would rather strengthen the IMF than tear it down or
severely cripple its ability to stem crises."

The report adds to the current debate on the future of the
international financial institutions. Some of the radical
proposals that have been made include completely shutting down the
IMF and World Bank or drastically reducing their mandates in
providing loans and advice to poorer countries.

The new report proposes that the IMF place more emphasis on crisis
prevention and less on stabilisation programmes. It says the IMF
must monitor the use of its funds to guard against corruption and
fraud and withdraw its support where corruption precludes the
sound function of political, legal and justice systems.

The report echoes growing calls for accountability and
transparency within the Fund, both to its members and to the
public. CED emphasises public access to information as essential
to crisis management.

CED is an American public policy organisation of more than 200
business and academic leaders, including present and former heads
of multinationals such as Ford Motor Company, Pfizer and the
Goodyear Tyre and Rubber Company. It is calling on the IMF to
release annual country reports conducted on its 182 member
countries as a condition for membership.

However, IMF first deputy managing director Stanley Fisher says
making disclosure a compulsory condition could hinder developing
economies where for instance information on an overvalued currency
would spark off currency upheavals. The IMF is currently
experimenting with voluntary disclosure.

The CED report follows two similar studies released recently on
international financial stability by US think-tank the Council on
Foreign Relations and by the International Financial Institutions
Advisory Commission (mandated by Congress).

These reports recommended methods of crisis resolution that rely
more on regulation of IMF functions than market principles. "Our
recommendations are founded on the belief that markets will reward
countries with institutions and policies that engender confidence,
attract private capital, and allocate capital efficiently," the
CED report states. "We recognise both the need for developing
country governments to help themselves and the indispensable role
of the IMF in preventing financial crises _ if prevention fails."

But some international non-governmental organisations have baulked
at IMF reform proposals emerging from the US Treasury and other
Group of 7 countries because they focus on pulling the IMF out of
developing countries. Oxfam International says the United States
and the G7 already have the IMF that they want - they control 57
percent of its vote and oversee loan conditions.

Unfortunately many of the recommendations for reform "are ill-
conceived and rooted in a perspective that reflects the
subordination of human development concerns to financial market
considerations," says Oxfam. During the 1990s many developing
countries removed restrictions on the import and export of
capital. These reforms, however, have been blamed for creating new
instabilities paving the way for financial outflows from emerging
markets.

While conceding that recent financial crises have had multiple
causes, the CED report blames developing country governments and
international financial institutions for failing to adapt to
changing markets as one of the triggers of some of the world's
recent financial crises.

Starting with the Mexico peso crisis that began in December 1994
and stretching through to the crises that rolled through East
Asia, Russia and Brazil in 1997-98, crises now appear to be driven
more by change in investor expectations than by poor economic
fundamentals the IMF notes. Analyses by the Fund show that while
financial crises have occurred frequently during the 1990s, they
are no more frequent than during previous decades, with 158
episodes of currency crises taking place between 1975 and 1997.

CED says that developing countries can help prevent crises by
increasing the openness, transparency, and accountability of both
public and private-sector institutions, and adopting international
standards in banking regulation, bankruptcy and corporate
governance.

"Developed country governments should also recognise that the
world's heavily indebted poorest countries lack both the resources
and incentive to adopt better policies while burdened by debt that
they cannot repay," says Kathleen Cooper, Chief Economist at Exxon
Mobil Corporation who co-chaired the team that produced the CED
report. Cooper says granting the poorest countries relief from
official debt is important in achieving widespread reform.
(END/IPS/EF/IP/gm/da/00)