[stop-imf] IMF Plan To Promote Good Economic Policy Gets Cool Reception

[robert weissman]

World Bank Press Review
Subject: Press Review for Oct. 2, 2004
[excerpt only]


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IMF Plan To Promote Good Economic Policy Gets Cool Reception
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An International Monetary Fund proposal to issue public praise for
countries that follow sound economic policies and don't want to borrow
from the agency has gotten a cool reception from IMF shareholders -
especially the poorest ones, reports Dow Jones.

The IMF unveiled the surveillance proposal Friday - but finance ministers
from the world's poorest nations denounced it even before the IMF could
organize a press release. In a statement, the Group of 24 ministers said
the proposal would set the stage for "minimizing lending to low-income
countries." The IMF said the proposal wouldn't be forced on its members -
nations would instead volunteer for it. But the G24 ministers weren't
reassured. "While the instrument has been presented as 'voluntary,' there
is a high probability that it would in fact become a requirement for
lending, grants, and debt relief," the G24 ministers said.

The IMF has historically had problems with that requirement - blowing the
whistle on a country with poor policies might help avert a financial
crisis by spurring reforms. But it might also trigger a crisis by
frightening investors. In 1999, for example, the agency set up what it
called its Contingent Credit Lines program, which it offered to countries
with sound economic policies that were at risk of financial "contagion"
from similar countries with poor policies. But few countries signed up for
it, and the program expired last year. "Members feared that an arrangement
providing for CCL resources would be regarded as a sign of weakness rather
than strength," the IMF said in a recent review of its surveillance
programs.

The IMF innovation unveiled Friday was aimed in part at creating "a
possible successor to the Contingent Credit Lines," the agency said. The
new program - tentatively called the Policy Monitoring Arrangement - would
be available to countries with sound policies that don't want to borrow
from the IMF but see a benefit to frequent IMF statements "to donors,
creditors and the general public about the strength of these policies."

The IMF's executive board, reviewing the proposal last week, wasn't
exactly enthusiastic, writes Dow Jones. Some IMF directors called the idea
"timely." But others complained they didn't get enough time to study it
and, citing the troubled history of IMF surveillance programs, recommended
that the agency not make it a top priority for now. Instead, they said,
IMF staff should simply "pursue consultations with potential users,
donors, and private market participants to ascertain the usefulness and
potential demand" for the PMA program. The G24 ministers, however,
condemned it outright, calling the PMA program "contrary to the purposes
of the IMF as an institution of international monetary cooperation."

Xinhua meanwhile notes ministers from 24 developing countries on Friday
urged the IMF to develop effective lending facilities to assist countries
in the prevention of financial crisis. In the absence of appropriate
crisis prevention mechanisms, developing countries must rely on excessive
reserve accumulation as a form of insurance against crises. The IMF should
play a much larger role in this regard, they said in a statement. The
Group 24 ministers also urged the IMF to make precautionary financing
available to countries pursuing strong policies, but which remain
vulnerable to exogenous shocks to their capital accounts. Welcoming the
resumption of the Doha Round of multilateral trade negotiations, the
ministers reiterate that the Doha Round should result promptly in improved
market access for developing country exports. They urged the IMF and the
World Bank to intensify their efforts to develop clear strategies to
assist countries in adjusting to greater trade liberalization.

AFX further reports the G24 ministers said the current US account deficit
drains vital funds away from poorer nations. The Group said the current
account deficit is largely financed by foreign capital inflows into the US
and diverts "a substantial portion" of world savings away from the
developing world. They also chastised the IMF and the World Bank for what
they said had been a failure to give them greater decision-making power in
the two institutions. They voiced "strong disappointment and concern that,
after two and a half years, no progress has been made on the issues of
increasing basic votes and revising the quotas of developing countries in
the IMF".

Agence France Presse adds that demands by the developing countries for
greater clout within the IMF and the World Bank are likely to intensify
next June when the current term of World Bank President James Wolfensohn
comes to an end. The G24 ministers said that if Wolfensohn does not seek
another five-year term, there should be "a transparent selection process
(to choose a successor), with a view to attracting the best candidates
regardless of nationality."

The Associated Press meanwhile reports the G24 also called on the IMF and
World Bank to intensify their assistance to the Palestinian people and
called on these institutions and multinational development banks to speed
contributions pledged to Iraq. They also said these institutions should
provide prompt and substantial assistance to hurricane-hit countries in
the Caribbean.