December 20, 1999
A Focused Role for the I.M.F.
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reasury 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