December 15, 1999

New Vision of the I.M.F. Is Proposed


LONDON -- The Clinton administration, which has defended the International Monetary Fund against vocal critics at home and abroad for many years, has proposed that the fund redefine its mission, become less secretive, and end some lending programs -- changes that critics have long demanded.

The proposed changes, the most thorough rethinking of the IMF's role in the world since the financial instability of the early 1970s, would limit its core mission to making emergency loans to countries that face short-term currency crises. In recent years, the IMF has assumed a broader role in advising and lending to poor and developing countries, but has been widely criticized as ineffectual in administering some longer-term programs.

Treasury Secretary Lawrence H. Summers, speaking at the London Business School on Tuesday ahead of a Berlin meeting of both advanced and developing economies, said the monetary fund should phase out long-term lending and cede some of its aid to developing countries to its sister agency, the World Bank. The fund should also be quicker to step aside when a country has ready access to private capital, Summers said.

"To say that the IMF is indispensable is not to say that we can be satisfied with the one we have now," Summers said in a speech outlining the proposals. "Going forward, the IMF needs to be more limited in its financial involvement with countries."

The blueprint for change is intended to serve as a mandate for a new managing director of the fund. Michel Camdessus, the current managing director, announced his resignation before the end of his term and will leave the IMF in February. Choosing a new managing director, a post that has customarily been held by a European, will be an informal topic of discussion at the meeting in Berlin beginning on Thursday, American officials said.

The administration's plan appears to be a response to a growing chorus of critics of the fund, including economists and members of Congress, who have said that the IMF could have done more to detect, prevent and contain the emerging-markets financial crisis that began in mid-1997. Though the crisis has passed without the worst fears of the IMF's critics having been realized, its lending programs to a few countries, most notably Russia, were widely considered to be failures.

Some members of Congress have tied their support for a highly touted Clinton administration goal -- forgiving the debt of some of the poorest countries -- to an overhaul of the IMF. Others have called for changes similar to those Summers outlined Tuesday. Rep. Jim Saxton, R-N.J., who monitors the fund, said that its long-term lending programs are conducive to corruption in poor countries and should be stopped.

In proposing the changes, Summers rejected calls for turning back the clock on the IMF to a time when its mission was solely to help countries shore up foreign-exchange reserves, a measure taken to protect a currency from declining too sharply in value. The Treasury secretary said the fund should still provide some long-term credit and guidance to poor countries. He also said that the fund deserves praise for how it handled the financial crises of the last several years, even in Russia.

But he nonetheless prescribed a thorough revamping. Most notably, he said the fund should phase out low-interest-rate financing, forcing most countries to raise money from private sources at prevailing interest rates. If that were carried out in full, it would affect dozens of the fund's lending programs around the world. Some programs, like the one for the Philippines, have run as long as 25 years.

Summers also said the fund should become more open to the public, by publishing its annual budget, for example. He said that the fund should compel member countries to disclose many kinds of financial data they now provide on the condition that it remain secret. Though that change sounds simple, it would involve a cultural revolution at the IMF, which has operated more as an exclusive club of nations than a conduit of information to outsiders.

The fund welcomed Summers' comments in a statement issued Tuesday. "He has touched on a number of critical areas that need to be considered as we draw the lessons of the recent crisis and prepare for the future," the statement said.

But Camdessus, writing in an IMF publication that predated the Summers speech, said the growth of the fund's lending programs was in response to a need among poor countries. He said proposals to drastically narrow the scope of the fund's work were misguided. "This would obviously be a recipe for irrelevance in today's world," Camdessus wrote. He could not be reached for comment on Summers' remarks.

Some critics of the fund said the proposed changes are on target. But Jeffrey Sachs, who heads Harvard's Institute of International Development and has been a vocal opponent of IMF practices, said that the fund, often with American support, continues to expand its mission in developing countries.

"In practice, the fund seems determined to hold on to a very broad agenda that impacts the lives of hundreds of millions of people," Sachs said. "The question here is whether we will see follow-through."

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