Panel Assails IMF, World Bank Policies; Says Institutions Failed Developing World
By MICHAEL M. PHILLIPS Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- The International Monetary Fund and World Bank have largely failed to bring financial stability or economic growth to the developing world and should sharply curtail their lending, a special advisory commission is set to tell Congress.
The panel's report, scheduled to be released Wednesday, will likely fuel a simmering debate over the future of the global financial institutions, which have been criticized following the late 1990s' Asian financial crisis. The attack on the IMF comes as its member countries are struggling to agree on a successor for Michel Camdessus, who retired last month after 13 years as managing director.
Among the recommendations endorsed by the majority of the 11-member congressionally appointed panel:
The IMF should stop lending to the poorest countries, and specialize in emergency lending to countries that lose access to private financial markets. Governments would have to pre-qualify for such aid.
The World Bank and IMF should write off all loans to the poorest, most heavily indebted countries if they implement effective economic and social policies, a proposal that goes well beyond the debt-relief plan endorsed last year by President Clinton and his rich-country counterparts.
The World Bank should end all financing for countries with investment-grade bond ratings or per-capita incomes exceeding $4,000 a year. There should be limited financing for countries with incomes above $2,500. This would affect China, Thailand, Brazil, Poland and many other nations.
The World Bank should use grants more than loans, and leave Latin America mostly to the Inter-American Development Bank and Asia to the Asian Development Bank, both regional lenders specializing in development loans.
The World Bank's business-finance arm, the International Finance Corp., should stop lending.
"The IMF has given too little attention to improving financial structures in developing countries and too much to expensive rescue operations," said the report. "Its system of short-term crisis management is too costly, its responses too slow, its advice often incorrect and its efforts to influence policy and practice too intrusive."
Bitter Division
The advisory commission, created by Congress as a condition for agreeing to a White House request for $18 billion in new IMF funding in 1998, was bitterly divided in its conclusions. Some GOP lawmakers were deeply skeptical of the IMF and, by appointing six panel members, saw the commission as a way to generate ammunition for their fight to trim its budget and activities.
Some dissenters suspect its conclusions were predictable even before its work began. The Treasury Department, which has three months to formulate a response for Congress, had no immediate comment on the report.
The Senate Banking, Housing and Urban Affairs Committee plans to hold a hearing on it on Thursday, but it isn't clear whether the commission recommendations will find their way into law. "The radical proposals of the majority ... are so extreme that they don't have any significant chance of finding their way into policy," said commission member C. Fred Bergsten, director of the Institute for International Economics in Washington and a leader of the four commissioners who dissented.
The dissenters, who described some commission proposals as "reckless" and "cavalier," argue that withdrawing most aid from governments that have some access to private money would leave them vulnerable to the kind of investor nervousness that caused so much havoc during the Asian crisis.
The Clinton administration has its own ideas about reforming the IMF and World Bank, but its plans are much more limited than the congressional commission's recommendations.
Last year, Treasury Secretary Lawrence Summers proposed that the IMF focus on emergency loans, eliminating most long-term development lending. Unlike the commission, however, he supports long-term IMF lending for the poorest countries, including those in Africa.
Summers's Proposals
And in the coming weeks, Mr. Summers plans to present his own set of changes for the World Bank and the regional development banks, a clear attempt to get ahead of the more radical proposals of the commission, which is led by Allan H. Meltzer, a professor at Carnegie Mellon University.
"There is a wide gap between the banks' rhetoric and promises and their performance and achievements," the report said. For instance, the report said the World Bank makes 70% of its regular loans -- as opposed to its bargain-rate loans for the poorest countries -- to 11 nations with access to private capital markets.
Stanley Fischer, the acting managing director of the IMF, had no immediate comment on the report. World Bank President James D. Wolfensohn, however, wrote to Mr. Meltzer, the panel's chairman, saying some commission proposals are "based on a fundamental misreading" of global development challenges.
Mr. Meltzer couldn't be reached for comment.