NYT on Soros/Fischer (fwd)

[Robert Weissman <rob@essential.org>]

January 5, 1999
The New York Times
I.M.F. Weighs Swifter Action to Bar Economic Crises
By DAVID E. SANGER
WASHINGTON -- The International Monetary Fund, sharply criticized for how
it handled crises from Southeast Asia to Russia, is discussing an
overhaul of the fund's operations that could let it intervene directly
in national economies long before they get into deep trouble. 
The ideas being discussed within the fund -- and by outsiders like the
billionaire investor George Soros -- build upon and go substantially
beyond proposals made by President Clinton and leaders of other
industrial powers in October. 
At that time, trying to calm the panic among investors who were pulling
out of developing nations, the administration backed some cautious
proposals that would allow the fund to act earlier, before currencies
collapsed and economic "contagion" spread around the globe. 
The first real experiment with a new approach began in November, when
the I.M.F. put together a $41 billion "precautionary" loan package for
Brazil, hoping that early intervention would prevent the kind of crisis
that struck Thailand, South Korea, Indonesia and Russia. 
The central idea now being discussed within the I.M.F. -- and outlined
in a speech Sunday by Stanley Fischer, the fund's No. 2 official -- is
to turn the fund into a "lender of last resort," making available pools
of money for countries that, like Brazil, appear threatened by global
economic forces beyond their control. 
Soros outlined his ideas for an enlarged role for the I.M.F. by
suggesting in the Financial Times that the fund become a global "central
bank." But the Clinton administration made it clear on Monday that it
has reservations about such a grand expansion of the fund's role. Such a
system, while intended to head off trouble, could create new risk. The
I.M.F., for instance, has shown little ability to predict which nations
are most at risk. 
Moreover, there remains the problem of what to do about nations like
Russia, which have resisted the kind of economic reforms that would
qualify them for I.M.F. aid. But when countries like Russia get into
trouble, the West feels compelled to provide aid anyway, as it did last
summer, when it determined that Russia was too big -- or too nuclear --
to fail. 
"There are a lot of interesting proposals out there, but there are a
number of concerns associated with all of them," a senior Treasury
official said Monday, on condition that his name not be used. "We're
still working through how to address those concerns, and whether we can
adequately address them at all." 
In an interview on Monday, Fischer, the one-time chairman of the
economics department at the Massachusetts Institute of Technology,
stressed that he was not seeking to "turn the I.M.F. into some kind of
superpower." 
"If everything we are trying to do works, there shouldn't be five crises
in a year, as we've just had, and the I.M.F. should be able to do less
lending rather than more," he said. "The whole idea is prevention." 
Fischer said that he was speaking for himself, but acknowledged that
many of the ideas had been widely discussed within the fund in recent
months. So has the question of how the widely criticized institution can
better its image. In December, it hired Edelman Public Relations
Worldwide and Wirthlin Worldwide, a polling company, to recommend how
the fund can explain itself around the world. That may be especially
difficult in Asia and Russia, where the higher interest rates prescribed
by the fund are blamed by many for deepening rather than alleviating
their recessions. 
In essence, Fischer's proposal would reward countries for good behavior
-- as defined by the I.M.F. and its board, which is dominated by the
United States, Japan, and Europe. 
Nations that strictly supervise their banking systems, that disclose far
more information about their financial state, and that balance their
budgets would "pre-qualify" for help from the I.M.F. Presumably
investors would be reassured, and currency speculators would not take
the risk of betting against that nation's currency. 
"For such a scheme to work, lender-of-last-resort loans would have to be
denied to countries that do not qualify," Fischer said in his speech to
the American Economic Association. To deal with that problem, Fischer
said, the I.M.F. may charge higher interest rates to countries that do
not meet the fund's criteria or make those countries agree to tougher
conditions once they come to the I.M.F. for help. 
There were echoes of Fischer's proposal in the recommendation from
Soros. 
Soros argued that the I.M.F. should act more like an international
central bank, that in a crisis would "impose conditions not only on the
country concerned but also on the creditors" who lent the country money,
thus regulating capital flows. 
Undoubtedly, that idea would encounter considerable resistance both
within Congress and among developing nations. In both places, suspicions
of the I.M.F. run high, and many countries have recoiled at the idea
that the fund, in return for offering its aid, could dictate economic
and monetary policy. 
"For the moment at least," Lawrence H. Summers, the deputy Treasury
secretary, said in a speech on Monday, "it is difficult to imagine
nations ceding control over their money or their banks to an
international institution."