NYT: A Focused Role for the IMF

[Robert Weissman <rob@essential.org>]

	      New York Times	
              December 20, 1999
              A Focused Role for the I.M.F. (editorial)

                    Treasury Secretary Lawrence Summers proposed last week
that the International
                    Monetary Fund begin to move away from making long-term
loans to developing
                    countries and focus instead on one key mission:
lending to countries in temporary
              financial crisis. That sensible proposal will attract
bipartisan support in a Congress that has
              grown increasingly hostile to the fund's perceived failures
in Russia, Brazil and elsewhere. 

              Indeed, Mr. Summers knows that a Congressionally appointed
commission will soon
              propose trimming fund missions along the lines he suggests.
The commission, led by Prof.
              Allan Meltzer of Carnegie Mellon University, has tentatively
decided to recommend
              eliminating the fund's programs to promote development in
poor countries -- a responsibility
              it thinks should be solely the World Bank's. The commission
would also eliminate fund
              programs that promote the transition of the former Soviet
Union to markets. Mr. Summers's
              speech not only pre-empts the commission's recommendations,
but also helps insulate Vice
              President Al Gore from Republican criticism of the fund's
failed bailout of Russia, which
              was undertaken with the Clinton Administration's vigorous
support. 

              Some countries wind up borrowing from the fund for 30 or 40
years with no decisive
              results. Many of these countries, Mr. Summers points out,
could tap private capital markets
              instead. 

              Yet Mr. Summers's speech did not go nearly as far as critics
of the fund would have liked.
              He suggested that the fund continue to lend to the poorest
countries to combat poverty, thus
              watering down his call for narrowing its mission. He
embraced the tools by which the fund
              currently lends money during crises whereas Mr. Meltzer says
his commission will propose
              major improvements. 

              Mr. Summers disappointed some critics by issuing only a
half-hearted call for the fund to
              lend to distressed countries even when they owe money to
foreign banks. Many economists
              object to the fund's current practice of requiring that
banks be paid in full before the fund
              steps in -- guaranteeing that the banks walk away unscathed
while workers suffer the full
              brunt of economic collapse. 

              After the fall of the Soviet Union, the fund was the only
international financial institution
              willing and able to help the former Communist countries move
to markets, but its ability to
              sway the destiny of these economies is quickly receding. The
World Bank is better
              positioned to fight poverty in poor countries that cannot
attract private capital. That leaves
              emergency lending as the one mission the fund is best
equipped to handle. Mr. Summers
              does not go that far. But he has at least put the United
States in position to start shoving the
              fund in that direction. 

                             Copyright 1999 The New York Times Company