US Treasury scrutinizes IMF lending rules; Bello on IMF

[Robert Weissman <rob@essential.org>]

Reuters
Dec. 7, 1999
US Treasury scrutinizes IMF lending rules
WASHINGTON ? The United States is taking a close look at the International
Monetary Fund, but is not ready to recommend reforms of the IMF, which drew
sharp criticism for its efforts to rescue reeling Asian economies during
the
global financial crisis, a senior Treasury official said on Monday.
Deputy Treasury Secretary Stuart Eizenstat told reporters Treasury wanted
to
use the current period of calm on financial markets to reexamine the role
of
the IMF, which put together rescue packages worth tens of billions of
dollars
as Asian economies tumbled into turmoil.
"We believe, at this period of relative calm in the international financial
situation, that this is a time to begin to look at a variety of options
with
respect to further reforms of the IMF," Eizenstat said after speaking at a
farmers? forum.
"We have come to no conclusions at this point, but this is something that
we
will be looking at further and elaborating on over the coming months."
The Wall Street Journal newspaper said on Monday that Treasury was set to
propose significant changes to the way the IMF operates, streamlining its
lending programs and concentrating on emergency programs for countries in
trouble.
The IMF currently offers a range of loans for different countries, charging
premium interest rates for emergency loans and subsidized rates for
longer-term credits to poor countries.
The US also wanted the IMF to step up its monitoring of debt problems in
individual countries ? high domestic debts in Asian states were a major
reason for their crash, the newspaper said.
But Eizenstat declined to comment on whether the IMF?s current portfolio of
loans was too broad.
"We are still looking at this internally within Treasury and that will
continue," he said.
The IMF came in for fierce criticism during the Asian crisis, especially
from
a hostile US Congress and Congress has already demanded a string of reforms
to make the fund more accountable and more transparent.
The institution on Monday announced a new system to audit its own accounts,
giving auditors PriceWaterhouse Coopers formal responsibility for reviewing
the IMF books for a five year period. An external audit committee will play
an oversight role, the IMF said in a statement.
--------------------
Far Eastern Economic Review
Issue cover-dated December 9, 1999
RETHINKING ASIA
Reform the Jurassic IMF
By Walden Bello
When the International Monetary Fund announced in September that it would
put
poverty reduction" at the centre of its approach toward developing
countries,
there was widespread speculation among Washington-watchers that Michel
Camdessus' days as managing director were numbered.
The Frenchman had been closely identified with the "structural adjustment"
programmes imposed jointly by the World Bank and IMF on close to 90
developing countries over the past two decades. Most recently, a
self-assured
IMFmoved into Thailand, Indonesia and South Korea with its classic
adjustment
formula: a combination of short-term stabilization measures, such as cuts
in
government spending, and long-term "structural" reforms to deregulate the
economy and liberalize trade and investment.
There was only one problem: It didn't work. Instead of triggering a
virtuous
circle of growth and prosperity, the programmes caused most countries, in
the
words of economist Rudi Dornbusch, to "fall into a hole," or a vicious
cycle
of stagnation, decline and poverty.
In the mid-1990s the then newly appointed World Bank president, James
Wolfensohn, began to distance his institution from the
structural-adjustment
approach. Camdessus and the IMF, however, ploughed confidently on, until
the
Fund's stabilization and adjustment programmes turned a crisis in Thailand,
Indonesia and South Korea into a full-blown collapse in 1998. His fate was
sealed when one of the biggest backers of the Fund and its approach, U.S.
Treasury Secretary Larry Summers, changed his tune and said the U.S. would
support "a new framework for providing international assistance to these
countries--one that moves beyond a closed, IMF-centred process that has too
often focused on narrow macroeconomic objectives at the expense of broader
human development."
But wait, isn't there something too easy about all this? The fact is,
jettisoning the paradigm of structural adjustment has left the IMF and the
World Bank adrift, with just the rhetoric and broad goals of reducing
poverty, but without an innovative macroeconomic approach. Bank officials
cannot point to a larger strategy beyond increasing lending for health,
nutrition education and social protection. The Asian Development Bank is
even
more of a newcomer in the anti-poverty approach, and its strategy paper
issued this year is long on laudable goals but breaks no new ground in
terms
of macroeconomic innovation. IMF economists are even more at sea.
Not surprisingly, the old framework is reasserting itself: The IMF is
already
telling Thailand to start cutting its fiscal deficit, despite a very
fragile
recovery, and pushing Indonesia to open its retail trade to foreign
investors, even though that would fuel unemployment. Meanwhile, the ADB is
making its energy lending and financing from Japan's Miyazawa fund for the
Philippines contingent on Manila agreeing to speed up the IMF-backed
privatization of National Power Corp., despite the fact that consumers are
likely to end up paying more for their electricity.
The problem lies in the very structure and culture of the IMF: a lack of
accountability except to the U.S. Treasury Department, a belief in
nontransparency as a condition for effectiveness, and a deeply ingrained
elitism that renders the bureaucracy incapable of learning from outsiders.
What would a real reform process look like? I would suggest the following
measures:
Clearing out the old adjustment framework will take more than renaming the
Extended Structural Adjustment Facility as the Poverty-Reduction Facility.
What's needed is the immediate dismantling of all structural-adjustment
programmes in the Third World and the former socialist world along with the
IMF adjustment programmes imposed on Indonesia, Thailand and South Korea
following the Asian financial crisis.
Immediately begin reducing the IMF's staff to 200 from the current level of
more than 1,000, and make major cuts in both capital and operational
expenses. Most of the Fund's economists are today employed in micromanaging
adjustment programmes. They could go if, as has been suggested, developing
countries were given more authority in formulating and implementing their
poverty-reduction programmes, and the Fund was mainly limited to monitoring
world capital markets and the world's monetary system.
Most important, however, must be the creation of a global commission to
decide whether the Fund should be reformed or--to borrow a phrase applied
to
ageing nuclear plants--decommissioned, as this author suggests. Half the
members of such a body should come from civil-society organizations, since
it
is these groups that were instrumental in bringing to light the destructive
impact of adjustment programmes and are now engaged in many of the most
innovative experiments in grassroots social development.
Energy from below and decentralized operations are the trademarks of so
many
successful organizations in our era. By contrast, the top-down, centralized
IMF looks Jurassic.