Summers: Scale Back IMF

[Robert Weissman <rob@essential.org>]

U.S. Will Urge IMF To Scale Back Role 
                       By John Burgess 
                       Washington Post Staff Writer 
                       Tuesday, December 14, 1999; Page E01 
                       The United States will push for the International
Monetary Fund to scale back its medium- and 
                       long-term lending, Treasury Secretary Lawrence H.
Summers said yesterday. His proposal comes 
                       at a time when the Washington-based agency is under
fire from many members of Congress and 
                       outside analysts as too big and too powerful.

                        "One of the major changes that needs to accompany
the tremendous increase in private-sector flows 
                       . . . is some reduction in the IMF's role as a
steady provider of medium- or long-term finance," 
                       Summers told reporters in Washington yesterday.

                        He declined to elaborate, saying he would do so in
a speech he plans to deliver in London today. 
                       He said that "a continually changing fund is
appropriate for a continually changing world."

                        The IMF had no immediate response. But in an
interview with an IMF internal newsletter, 
                       Managing Director Michel Camdessus suggested the
IMF has grown for good reasons. "I know 
                       that there is, here and there, some nostalgia for a
mythical 'good old fund,' limited to a narrow 
                       scope of concerns . . ." he said. "This would
obviously be a recipe for irrelevance in today's 
                       world."

                        The United States is the fund's largest
shareholder, accounting for about 17 percent, or $50 billion, 
                       of its capital, so Summers's words will carry
clout. If he gets his way, financial officials said, there 
                       might be a larger role for the IMF's sister
institution, the World Bank, whose job is to focus on 
                       long-term development lending.

                        But Summers made it clear that he sees private
money as ruling the roost. "Inevitably private-sector 
                       flows will be the dominant source of capital flows
to emerging markets," he said. He will seek 
                       ways for the IMF to "best supplement, rather than
supplant," private money.

                        The IMF, which is owned by its 182 member
governments, was founded in 1945 to give 
                       short-term loans to countries that run out of
foreign exchange and can't meet their overseas 
                       obligations. It has expanded steadily, to the point
that it currently is owed about $90 billion by 
                       countries that span the alphabet from Albania to
Zimbabwe.

                        Its longest-term loan is three years, but some
countries remain on what amounts to financial life 
                       support by continually negotiating new loans when
their terms are up.

                        The fund mobilized more than $100 billion of its
own and member governments' money to blunt 
                       the Asian financial crisis. With those days
slipping into memory, for now at least, many economists 
                       are praising its role.

                        Summers yesterday called the fund "indispensable"
and said that "we would all not be breathing 
                       nearly as easy as we are today if the IMF had not
taken the steps it did during the financial crisis."

                        At the same time, the IMF has drawn criticism from
conservatives who see it as oversized, 
                       unaccountable and incompetent, a financial sinkhole
for taxpayers. Liberals cast blame too, calling 
                       the fund heartless for demanding painful economic
changes from already poor countries. Whenever 
                       the White House goes to Congress for funding, then,
there is mistrust.

                        The International Financial Institutions Advisory
Commission, a study group that Congress set up 
                       to propose changes, is also leaning toward calling
for a slimmed-down IMF. Under draft 
                       recommendations approved by the group, the fund's
role would be limited to collecting data on 
                       economic conditions and lending temporarily to
countries unable to get money from commercial 
                       sources.

                        Yesterday, Summers also said that a program to
forgive some of the debt of the world's poorest 
                       countries is on track to begin early in the new
year. Bolivia, Uganda, Mozambique, Mauritania and 
                       other countries are first in line to take part, he
said. Other countries might be added to the list.

                        The United States supports a decision by Camdessus
to withhold further IMF funding for Russia 
                       until that country makes more structural changes to
its economy, he said.

                        Summers declined to comment on whether the United
States would support Caio Koch-Weser, a 
                       German deputy finance minister, who has been
mentioned in Europe as a possible new IMF head 
                       when Camdessus steps down early next year. By
tradition, Europe selects the IMF's chief.

                        

                       Staff writer John M. Berry contributed to this
report.