SUMMERS URGES IMF REFORM.
US Treasury Secretary Larry Summers proposed yesterday night scaling back the role of the IMF to allow the private sector a greater role in providing finance to poorer countries, the Financial Times reports (p.1). In a speech given to the London Business School, Summers said the IMF had to reflect changes in the global financial system, and focus on preventing and responding to international financial crises. The Wall Street Journal Europe (p. 14), the Wall Street Journal (p.B14), the New York Times (p.C4), the Washington Times (p.B9), Le Figaro (France, p.40), Les Echos (France, p.6), and Süddeutsche Zeitung (Germany, p. 29) also report on Summers proposals for IMF reforms.
The US plan is partly a response to the lessons of the Asian financial crisis, but it also marks an attempt to stave off critics in the US Congress who have threatened to cut off funds for the IMF over its multi-billion dollar support for Russia, the piece continues. Summers called on the IMF to focus on its "core competencies" by giving up the provision of long-term finance to countries that ought to be able to use private sector sources.
"The IMF cannot expect its financial capacity to grow in parallel with the growth of private sector capital flows," he said. "It should not be a source of low-cost financing for countries with ready access to private capital, or long-term welfare that cannot break the habit of bad policies".
Dow Jones adds Summers called for the IMF to limit itself to short-term lending for financial emergencies and the World Bank to take more of a lead in long-term development and poverty reduction. "Going forward the IMF needs to be more limited in its financial involvement with countries, lending selectively and on short maturities," he said. "The IMF must be a last, and not first, resort - and its facilities and approaches should increasingly reflect that."
While the IMF should continue focusing on emergency lending, it should not tackle the long-term problems of developing countries, saying that is the domain of its sister institution, the World Bank, Bloomberg adds Summers said. The IMF and the World Bank have seen their roles intertwine, with the Fund doing more long-term lending and the Bank contributing billions of dollars to IMF financial rescues, notes the story.
Coming as member countries prepare to choose a new IMF managing director, and amid calls from the US Congress to reform the Fund, Summers' initiative may face resistance from other Fund members because it could raise US influence among multilateral lending bodies, continues the Dow Jones piece. It would enhance the role of the World Bank, which is traditionally headed by an American, currently James Wolfensohn; while it would restrict that of the IMF, traditionally headed by a European, currently Michel Camdessus of France. Summers said the US, Britain and others want "a fundamentally new framework for the international community's efforts to combat poverty, one that gives the World Bank the lead and the IMF a more tightly focused role."
Summers paid tribute to the "imaginative leadership" of Camdessus, but the signs in Washington are that the US administration would like to see a clear break with his 13-year term, the FT piece adds.
Meanwhile, one of the Fund's most frequent critics in Congress, Senate Banking Committee Chairman Phil Gramm (R-TX) welcomed Summers' remarks, reports the Washington Post (p.E1). "Having a leaner, tougher agency is always good. Lending on a short-maturity basis is the way the IMF should function," he said. He predicted that other major IMF countries would support the changes Summers proposed.
Rep. H. James Saxon (R-NJ), a vocal critic of IMF operations, said he was encouraged that the administration at least recognized that "the IMF is ripe for reform" but he said the measures would not go far enough in eliminating low-interest, heavily subsidized loans the IMF extends to many countries, adds the Washington Times (p.B9)
In related commentary, Martin Wolf comments in an Financial Times (p. 19) op-ed that the departure of Camdessus is an opportunity to refocus the institution he has led for an unprecedented period of 13 years. The ending of the financial turmoil of 1997 and 1998 can only facilitate achievement of this task. As an exemplar of bureaucratic entrepreneurship, the IMF is a triumph. It has successfully added new product lines and expanded its activities . No ill wind fails to blow it some good. Yet what is good for the institution is not necessarily ideal for the world, Wolf continues. A change in management is the ideal time to refocus the institution on its core tasks. He adds that these reforms would separate the functions of the IMF and World Bank.
Further, Bloomberg reports Caroline Anstey, the chief spokeswoman for the World Bank, said in response to the speech, "Long-term development and poverty reduction are the World Bank's core mission, it's what we do best...We are pleased that Treasury fully embraces that view, but we want to be part of how these ideas are developed.'' The WP adds Summers suggests giving the World Bank the lead role in a global debt relief program for desperately poor countries.
Meanwhile, the German government Wednesday cautiously endorsed Summers' comments, reports Dow Jones and Agence France-Presse. "In broad areas, Summers' views are shared by Germany, but there are still issues where the two countries haven't reached agreement yet," a top German Finance Ministry official speaking on condition of anonymity,told reporters ahead of the inaugural meeting Thursday of the G20.
Dow Jones also reports Summers reiterated that Bolivia, Mozambique, Uganda, and Mauritania will be able to benefit from debt relief under the highly indebted poor countries, or HIPC, program very early in 2000. By the spring IMF/World Bank meetings, other countries will likely begin to receive relief under the HIPC program, which aims to ultimately forgive about $27.4 billion in debt.
Separately, Le Figaro (France, p. 29) announces Michel Camdessus is to meet with French President Jacques Chirac today in Paris.
WELCOME FOR EMERGING MARKET AT G20 LAUNCH. Finance ministers and central bankers from countries with more than half the world's population will gather for the inaugural meeting of the new G20 in Berlin this week, reports the FT (p.4). The new grouping combines the G7 industrialized group of nations with 11 selected emerging market countries including China, India, Russia and brazil, chosen because of their significance for the global economy. The EU and the IMF and World Bank will also attend.
The story notes that its launch represents a personal success for Canadian finance minister Paul Martin, who will chair the group for its first two years. Martin suggested the need for some permanent version of the ad hoc groupings, including the G22 and G33, which mushroomed during the Asian financial crisis of 1997-98 as it became clear that emerging market countries needed to be included in discussions of the global financial system. The G20 was launched at the IMF's meeting in September, the story adds.
The piece says the issues on the group's agenda this week are not simple or uncontroversial ones. The ministers and governors will discuss financial regulation and supervision, debt management, exchange rate regimes and international codes and standards, many of which have seen emerging market countries disagree with the G7 in the past.
But despite the prospects for disagreement, Martin is keen that the group should not become merely a "discussion circle." "I know most of the individuals involved reasonably well, and have met each and every one of the G20 finance ministers and discussed this thoroughly," he says. "The aim of the G20 will be to make globalization work for people, not just for institutions."
Meanwhile, Agence France-Presse reports Germany regards it as "absolutely essential" to reduce the number of international groupings, such as G7, G8 or G20, sources close to the German finance ministry said on Wednesday. According to World Bank figures, the G20 countries account for 86.7 percent of the world's GDP and for 65.4 percent of the total global population. The new grouping, set up in September, is intended to be more effective than previous groupings in tackling restructuring of global finance.