Global Storm for Lenders: Fund Comes Under Siege



Global Storm for Lenders: Fund Comes Under Siege


New York Times- (04/16/00)





WASHINGTON, April 15 -- As the police built barricades and wrapped razor wire over the gleaming glass front of the World Bank headquarters here, James D. Wolfensohn, the bank's Australian-born president, gathered his staff members this week and told them to "remember to stand tall, because we are way ahead of the protesters."


It was a telling moment of defiance in the battle over who is to blame for the widening economic inequities that thousands of people are arriving in Washington to rail against, and that led the police to shut down the demonstration's headquarters today and arrest about 600 people.


"What I find demoralizing is that there is no organization on earth that is doing more for the poor than we do," Mr. Wolfensohn

 said in a hurt tone this week "Globalization is not something the World Bank can turn back. It's not something the International Monetary Fund can stop. We can only help people and countries adjust to it, to try to close the gaps."


Mr. Wolfensohn paused and then, referring to the head of the World Trade Organization, the initial target of the protesters' ire

in Seattle late last year, he added, "You know, Mike Moore said today that blaming us for civil strife and poverty is like blaming the Red Cross for war."


Perhaps so, but second-guessing generals and doctors is hardly new, even in economic wars. The television videotape on Sunday is likely to focus on the noisiest and most vociferous of the street protesters, who call for closing the bank and the fund, regardless of the impact that may have on lending money to countries that the markets shun or intervening in the next global economic crisis. But they are hardly the only critics taking aim at the half-century-old institutions.


Barely a week goes by in Washington these days without an environmental group criticizing the World Bank's 650-mile-long oil pipeline project in Chad and Cameroon, or a development project on the fringes of Tibet that has been caught up in the politically sensitive question of whether the bank is helping China dilute the proportion of Tibetan people in the area.


Commissions galore are re-examining whether the bank still lends too much to middle-income nations and not enough to the world's poorest. The I.M.F. is still embroiled in battles over whether it did more harm than  good when it placed strict budget-balancing and interest rate requirements on nations hit by the Asian contagion. And then there is the World Trade Organization, which is not meeting in Washington but is a target nonetheless.


In Europe and Asia, the W.T.O. is seen as a tool of Washington, forcing countries to ingest hormone-treated beef or allow in American manufacturers. In Washington, it is seen by many on Capitol Hill as a rogue bureaucracy intent on setting labor, environmental and trade rules that override national laws.


"I think one of the common complaints is that many of these organizations don't listen as well as they say they do," said Andrea Durbin, director of international programs for Friends of the Earth, who frequently deals with the institutions. "The Indonesians have a new saying for dealing with the World Bank: they invite us, they inform us, and then they ignore what we have to say."


But it is also clear that the criticism is having some effect. The I.M.F. now publishes far more data about the economic condition of its member countries than ever before. And Mr. Wolfensohn comes to today's meetings brandishing charts showing that big power projects, once 25 percent of the World Bank's lending, now account for just 2 percent and that spending on nutrition, education and "microloans" to small businesses, many run by women in the third world, has skyrocketed.


He talks about new partnerships with the World Wildlife Fund in Brazil. For the first time, the top issue for the Development Committee, the bank's main policy-setting body, is a review of programs to fight AIDS, taking the bank into areas previously handled by the United Nations and the World Health Organization.


But it is also clear that many of these changes do not strike at the core of the bank's operations and that the pressure for far bigger reform is growing. Twice in the last few months Treasury Secretary Lawrence H. Summers has given speeches calling for "a new division of labor between the I.M.F. and the World Bank."


While Mr. Summers hedged his comments to avoid fueling more extreme critics, he is clearly worried that the bank lent far too little money for humanitarian purposes during the Asian crisis, and should get out of some lending that could be handled by the private sector.


A careful reading of Mr. Summers's speeches suggests that he harbors considerable skepticism that the bank's talk of reforms is matched by reality. But in an interview on Thursday, he insisted that "the people who work at the international institutions are as concerned with reducing hunger, disease and poverty around the world as anyone in the streets." And he added: "There May be differences about what kind of economic approaches work best. But it's wrong to suggest that anyone has a Monopoly on moral virtue here. What we should be doing is finding the strategies that work in raising living standards for desperately poor people."


In fact, to wander the halls of the bank and the fund this week was to run into people who sounded a bit shellshocked. The bank in particular is heavily staffed with people who, in the words of one of Mr. Wolfensohn's top aides, "10 years ago would have been more likley to be on the outside of the barricades, and then decided they could get more done inside." And naturally there are bureaucratic rivalries between the institutions.


While many of the proposals to reform the bank and the fund appear to be at cross purposes, there is rough agreement that both have strayed from their main missions.


"Everyone wants the bank and the I.M.F. to return to their core competencies," said Nancy Birdsall, a senior associate at the Carnegie Endowment for International Peace, who participated in a study with the Overseas Development Council. "The question is how to do it."


The I.M.F. should lend to poor countries, she said, but "not for too long, because they get sucked into other issues, from reforming education to bank supervision to designing the medical care system."


"Let's put poverty reduction in the World Bank, and managing crises back in the I.M.F.," she concluded.


But another major study, commissioned by Congress and headed by  Alan Meltzer, a Carnegie Mellon professor who until recently called for the elimination of the fund, concluded that the I.M.F. should lend money to countries in distress for no more than 120 days, with perhaps one renewal. Fund officials say that is ridiculous; they would have been pulling money out of Thailand, Indonesia and South Korea before their recoveries had gathered any steam.


 "Some of these ideas don't make any sense," said Stanley Fischer, the fund's No. 2 official. "It's fine to say that countries shouldn't rely on the I.M.F., just the way it would be nice if people didn't need to rely on psychiatrists. But sometimes you need some outside help, and it's usually when all the private money is pulling out."


Because the fund's track record has been mixed at best -- not surprising, since countries come to the fund only when they are in dire financial straits -- it has been a ripe target. Moreover, there is little question that some of its policies in recent years made bad situations worse.


Moreover, the fund is at a vulnerable moment. Its longtime chief, Michel Camdessus, just retired, and a bruising battle over the selection of his successor divided its board.


As the new chief, Horst Kohler of Germany, arrived in Washington this week, he was greeted with a vituperative blast by Joseph E. Stiglitz, the former head of President Clinton's council of economic advisers and then chief economist at the World Bank. The protesters on the street, Mr. Stiglitz wrote in the magazine New Republic, will "say the I.M.F.'s economic 'remedies' often make things worse -- turning slowdowns into recessions and recessions into depressions."


"And they'll have a point," he said.


The fund, he added, "undermines the democratic process by imposing policies" in return for its emergency cash. But his main complaint appeared to be that it was not willing to adopt his approach to handling the Asian crisis when he was at the bank.


The I.M.F. and economists have shot back. "When countries arrive at the I.M.F., on a stretcher, this is not the time for cute ideas," Rudiger Dornbusch, an M.I.T. professor and a critic of the fund, wrote in response. "Drastic politics are  necessary to avoid hemorrhage, currency collapse and irreparable meltdown."