JoC Editorial on IMF (fwd)

[Robert Weissman <rob@essential.org>]

Note the following quote in the story below:

Meanwhile, Rudiger Dornbusch, economist at the Massachusetts
Institute of  Technology, told a conference in New York that the IMF is
not going to be abolished and is not going to turn into the world's
central bank. "The IMF is a toy of the United States to pursue its
economic policy offshore," he  declared.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org


Journal of Commerce Opinion
1/7/1999

"World central bank"

              The International Monetary Fund needs to change, but not into 
a world central bank.

              The IMF's record in foreseeing global financial crises and 
heading them off is spotty at best. It does not have a mandate to be the 
lender of last resort to the world, nor should it be given such a role.

              The silly season came early this year. First, the New York 
Times suggested that the advent of the euro single currency represented a 
return to medieval times in Europe as countries relinquished their 
sovereignty. Then financier
              George Soros said in the Financial Times that the IMF should 
be transformed into a global central bank to reduce the risk of world 
economic  crises.

              The defenders of nationalism have little need to worry, 
however, because a global Federal Reserve is not in their future -- nor 
should it be. Mr. Soros was right when he warned that "markets can move like 
a wrecking ball, knocking over one economy after another." But he was wrong 
when he suggested that the IMF has become "part of the problem rather than 
the solution."

              Advice and observations are being offered energetically. Some 
call for abolition of the IMF. The redoubtable Mr. Soros strongly disagreed 
(and so do we). He went further: "If global financial markets are inherently 
unstable, we need a stronger regulatory framework rather than dismantling of 
existing institutions."

              IMF First Deputy Managing Director Stanley Fischer last 
weekend floated the idea of giving the fund new powers. The IMF is not an 
international central bank, he said, but in the current system it performs 
key lender-of-last-resort functions. And it could be more effective in that 
role, he told economists in New York, in a reformed international financial 
system.

              "For such a scheme to work, lender-of-last-resort loans would 
have to be denied to countries that do not qualify," Mr. Fischer said.

              Meanwhile, Rudiger Dornbusch, economist at the Massachusetts 
Institute of  Technology, told a conference in New York that the IMF is not 
going to be abolished and is not going to turn into the world's central 
bank. "The IMF is a toy of the United States to pursue its economic policy 
offshore," he  declared.

              We are opposed to the two-tier IMF that Mr. Fischer envisions, 
because it would create a world of pariahs. Those countries without sound 
banking systems would be forced to pay high interest rates that they cannot 
afford.
              The IMF has 182 member countries, and it needs to serve them 
all equitably.

              We support the plan being discussed by officials of the Group 
of 7 major industrial nations to merge the ministerial committees of the IMF 
and the World Bank. This relatively small step would give developing 
countries a stronger voice in world economic affairs.

              Meanwhile, the idea of a world central bank will have to wait. 
As Deputy U.S. Treasury Secretary Lawrence Summers said in a speech Monday, 
"For the moment at least, it is difficult to imagine nations ceding control 
over their money or their banks to an international institution." The IMF 
should continue taking a pre-emptive approach and should move early to head 
off budding financial crises through early intervention, as it did with 
Brazil.
              Forcing countries already in trouble to pay high interest 
rates will only add to the problem.

              The IMF does not need any new powers. It just needs to do its 
homework better, to listen more closely to all of its members, and to get 
into a better position to see trouble coming. After all, the IMF would need 
considerable new resources to protect the "top tier" countries by 
guaranteeing to lend to them when financial markets are not willing to do 
so. There is little political support -- in the United States or elsewhere 
-- for creating such an all-powerful institution.

              The IMF needs to make its policy reviews and decision-making 
more public and inclusive, and it needs to monitor more closely global 
short-term money flows. This will enable it to perform the role of global 
watchdog and to build international support for its operations.