An Effort by U

An Effort by U.S. to Change the I.M.F. Is Set Back

New York Times, Aug 8, 2000

 

          By JOSEPH KAHN

 

WASHINGTON, Aug. 7 – Poor countries are fighting a proposal by the leading industrial nations to increase the cost of borrowing from the International Monetary Fund and the World Bank, dealing a blow to a campaign by Secretary of the Treasury Lawrence H. Summers to change the lending agencies.

 

The differences emerged today when Horst Köhler, the I.M.F.'s new managing director, chided Group of Seven finance ministers for announcing their desire to charge more for loans instead of working within the fund to build consensus on the issue. Several big nations that vote on loan decisions at the I.M.F. and the World Bank oppose the changes.

 

"The direction the G-7 have set up, I think, is right and should be considered carefully," Mr. Köhler said here, addressing a plan that had been endorsed by the wealthy nations in advance of their meeting of top leaders in Japan last month. "But it is now a problem because a big group of countries within the fund feels itself lectured by the presentation of these ideas. It makes things not easy."

 

Mr. Köhler's comments came after the fund's board rejected the proposal from the Group of Seven in an unpublicized, informal tally late last month, a board member said today. Only about half the board members, by voting power, sided with the Group of Seven, with 70 percent support required to change lending rates.

 

The board's decision was a setback for Mr. Summers, who has tried to change the way the I.M.F. works and has persuaded the Group of Seven -- Japan, Germany, Britain, France, Italy and Canada, in addition to the United States -- to endorse an increase in lending rates as an important  element of his plan to overhaul the international agency.

 

The treasury secretary, responding in part to heavy criticism in Congress, has tried to change some of the fund's practices to address concerns that it has made mistakes while expanding its role in recent years.

 

The I.M.F. has repeatedly lent to a growing number of poor and modest-income nations, fought financial crises, helped the West transform Russia, and attached sweeping conditions to loans in an attempt to turn borrowers into efficient capitalists.

 

There appears to be broad agreement, especially among wealthy nations, that the fund should streamline its activities. But developing nations, which make up a substantial voting bloc on the fund's board and double as borrowers, do not want to pay more for their loans or to agree to apply for help less often.

 

Some board members from poor countries also disagreed with the reasons the Group of Seven gave for wanting to raise rates. The industrial nations said higher rates could make more money available for new ending and the forgiveness of debts of the poorest countries.

 

 "This is a case of them asking the poor to help the poor," a board member said.

 

Speaking at the National Press Club, Mr. Köhler said he personally supported the idea of raising loan rates, but disagreed with the rich nations' decision to push for the changes outside the fund. He said the job of winning support had now become harder.

 

Mr. Köhler became managing director three months ago, after a protracted struggle that pitted the United States and several other nations against Germany. The Clinton administration effectively vetoed Germany's first choice of a candidate to head the I.M.F. before settling on Mr. Köhler, who is a former German government official.

 

Mr. Köhler used his speech today to preview other elements of a plan he is working on to change the I.M.F. As he has signaled in the past, he said he intended to focus the fund primarily on broad economic management and to reduce overlapping activity with the World Bank, whose mandate includes fighting poverty and overhauling the way poor countries manage           their economies. His ideas are broadly similar to those of Mr. Summers.

 

Some in the Group of Seven had expressed hope earlier that the I.M.F. and the World Bank would endorse pricing changes during their annual meeting in Prague late in September. But several fund officials said that was unlikely now. An official at the World Bank said that its board was also discussing lending rates but that there was no consensus to increase rates at this time.

 

A Treasury Department spokeswoman said the Group of Seven often agrees on changes to I.M.F. and World Bank policies among themselves before presenting them to the boards of the two institutions. She said the Clinton administration still hoped that the changes would be made. "We are glad that the managing director supports pricing reforms," the spokeswoman said. "It will be an important test of the I.M.F. to forge a consensus."