Report Seeks Big Changes in I.M.F. and
(New York Times- 03/08/00)
WASHINGTON, March 7 -- The International Monetary Fund and the World Bank should be radically shrunken and overhauled because they often do more harm than good in the developing world, a Congressional commission will recommend.
The commission, which plans to release its report Wednesday, also asserts that both the I.M.F. and the World Bank waste billions of dollars making loans to middle-income countries that could rely on private capital instead.
Among its findings, the commission said that the institutions should sharply curtail their lending programs, that they often interfere too much in the domestic policy and even the politics of countries they seek to help and that they had generally failed to lead nations out of poverty.
The report, more than a year in the making, is highly political. The Republican-led Congress ordered the 11-member panel of scholars to study how to remake the Washington-based sister institutions after agreeing to provide $18 billion for the I.M.F. during the financial crisis that began in Asia. The panel's conclusions seem certain to fuel a partisan effort by some in Congress to reduce or even eliminate the United States contributions to the two agencies, though officials consider the chance of that happening as small.
Treasury Secretary Lawrence H. Summers, anticipating the main thrust of the report's conclusions, proposed a plan late last year to streamline the monetary fund that embraces several of the report's recommendations. Mr. Summers is also conducting a study of the World Bank that aims to reflect some common criticisms of the way the bank works. But it will also defend its mission against people who argue that it has outlived its usefulness.
The Congressional commission, headed by Prof. Allan H. Meltzer, an expert on monetary policy at Carnegie Mellon University, split along political lines before drafting its final report, which had been debated openly in Washington for weeks. Four of the five commission members appointed by Democrats dissented. They then issued their own report that recommends more modest changes.
The report touches on a central issue in this time of globalization: What is the role of World War II-era international institutions set up to help relieve poverty and provide a stable financial environment now that private capital flows have become the overwhelmingly dominant influence on the world's economic health? The report reflects an often-heard criticism that the I.M.F. and World Bank have become ever larger even though they are no longer needed to do the jobs they originally did.
"There was a sense that something had gone awry at both institutions," said Jerome I. Levinson, a professor at American University and a member of the Meltzer Commission. But Mr. Levinson, along with the other dissident Democratic appointees, said he believed the commission was motivated by a preconceived notion that the I.M.F. and World Bank should be eliminated.
"There were real differences between those who want to fix things and those who think they do such harm that we're better off getting rid of them," he said.
The report seems unlikely to lead to a revamping of the World Bank and the I.M.F. during the Clinton administration. But it could serve as the blueprint for an overhaul if a Republican president is elected. Even then, however, other wealthy countries that along with the United States provide most of the money for the bank and fund would have to agree to make changes.
And at a time when Congress has proved stingy in financing world agencies, including the United Nations, it seems likely that the next United States president, as has Mr. Clinton, will find the I.M.F. and the World Bank indispensable. The World Bank alone makes $50 billion in development loans each year, more than three times the entire foreign aid budget of the United States. The I.M.F. played what some supporters argued was a crucial role defending against the spread of financial malaise in recent years, committing tens of billions of dollars that might have been difficult to appropriate from national legislatures on short notice.
The report recommends that the I.M.F. mainly help nations cope with temporary problems that arise when capital leaves faster than it enters, by making only short-term "liquidity" loans at high interest rates.
The report goes on say that the fund should stop trying to relieve poverty, calling that a task better left to other agencies. Moreover, the monetary fund should stop offering long-term, low-cost loans with conditions that countries like Russia or Turkey must meet I.M.F. goals on their finances and economies. Instead, the fund should refuse to make loans of any kind to nations that do not meet certain rigid criteria.
For the World Bank, the prescription is Draconian. The report recommends that the bank be renamed the World Development Agency and basically get out of the business of making loans. Such loans, the report says, should be the preserve of private banks and brokerage houses.
Instead, the bank should focus on providing grants to people who need them in the poorest countries, it says.
The report suggests that as a first step the bank should phase out all loans to nations where per capita income is $4,000 or more, which is the bulk of its lending today. Moreover, it should allow regional development banks, which have much less capital, to take the lead in Asia and Latin America, where there are many such middle-income countries.