I.M.F. and World Bank Blueprint
(New York Times-03/09/00)
More than half a century after their creation, the International Monetary Fund and the World Bank could use some fresh thinking about their operations. Thanks to a Congressional commission that unveiled its recommendations about the institutions yesterday, there are some bold new ideas to consider. Some of the suggestions are ill conceived, but others deserve serious consideration by the United States and other nations that belong to the two organizations.
One of the biggest and best ideas in the report is a call to cancel the crushing debt of the world's poorest countries. If the commission does nothing else but spur the United States and its allies to get behind this plan, it will have accomplished a lot.
The 11-member, bipartisan commission voted unanimously to strip the I.M.F. of all but one task: extending emergency loans to countries whose currencies come under attack. The job of fighting poverty would be turned over to the World Bank. This is a sound idea that would produce a clearer division of responsibilities.
The commission would end the current practice of making I.M.F. bailouts contingent on the acceptance of strict and sometimes harmful economic policies dictated by the fund after a country falls into financial crisis. Instead the fund would require countries to qualify for future loans by opening up their banking systems and taking other steps that could help prevent a crisis. This would have the added advantage of allowing the fund to react more quickly when trouble develops.
These recommendations are constructive, but go too far. Countries that do not pre-qualify for assistance would be unable to get loans in a crisis. A less drastic reform would allow the fund to extend loans to wayward countries, but at a higher interest rate. The report also errs in limiting emergency loans to eight months. Neither of these defects would be hard o fix.
As for the World Bank, the commission would justifiably eliminate lending to countries whose credit ratings permit them to tap private capital markets. It would concentrate the bank's money on fighting poverty in the world's 80 or so poorest countries. The commission also recommends that the bank use grants rather than loans to pay for its programs. To vaccinate children, for example, the bank would solicit bids and pay for the vaccines itself as they are actually delivered. The idea is to reduce corruption and waste. Switching to grants would require more money from the donor countries -- which the report strongly advocates. This may be possible, but is far from assured.
Congress is not expected to act on the report soon. But some politicians are already denouncing the commission, wrongly, for dismantling the I.M.F. and the World Bank. The danger is that political squabbling will squander an opportunity for Democrats and Republicans to reach an important agreement. The I.M.F. and World Bank need to sharpen their focus and improve their programs. The first step toward these goals is to lift the debts that keep desperately poor countries trapped in poverty.