Scrambling to keep ahead of hard-line US lawmakers who want to perform radical surgery on the World Bank and the IMF, US Treasury Secretary Lawrence Summers today will propose his own, more limited set of reforms for the Bank and its regional counterparts in Asia, Latin America and Africa, reports the Wall Street Journal (p.A36) and Wall Street Journal Europe (p.2).
In a speech to be delivered at the Council on Foreign Relations in New York, a favorite testing ground for US President Bill Clinton's initiatives, Summers will argue that the development banks should refocus their lending on projects too edgy to attract private money; on poor countries that prove they can spend public funds honestly; and on vaccines, the environment, and other areas of value beyond borders.
"You have to be prepared not to lend if you can't be confident the money will be used effectively," said one senior Treasury official familiar with the Summers plan. The proposals supplement ideas Summers presented late last year to narrow the operations of the IMF.
The US cannot dictate reforms at the World Bank or such regional institutions as the IDB, the ADB, and the AfDB, notes the story. But as the largest single shareholder in the institutions, the US can often sway other member governments to follow its lead.
Both the Fund and the Bank were lambasted earlier this month in the report by the US congressional advisory commission [chaired by economics professor Allan Meltzer], which recommended sharp cutbacks in the institutions' lending. The commission majority urged that the World Bank focus on grants rather than loans and cut off countries that have investment-grade bond ratings or per-capita incomes exceeding $4,000 a year. Countries with per-capita incomes above $2,500 would qualify only for limited World Bank aid. Several members of the 11-person commission disagreed vehemently, saying those recommendations would worsen the plight of the poor around the globe, the story notes.
Handelsblatt (Germany, p.13) meanwhile reports that Meltzer rejected criticisms of the report, saying the commission is not urging privatization of the IMF but greater effectiveness of the Fund and the Bank's development aid, which should be left to the World Bank and the regional development banks.
While Treasury officials stress that Summers' reform plan, long in the works, isn't a reaction to the commission, he evidently wants to steer clear of that body's more extreme proposals and reorient, rather than reduce, the Banks' lending to poor countries, the WSJE continues.
Among his ideas: the better-off developing countries, such as Brazil or China, should pay higher interest rates for World Bank loans to ensure that they seek public funding only when private money isn't available; the [international financial institutions] should get used to the idea that rich countries aren't likely to replenish their capital for lending to better-off borrowers, so proceeds from higher-rate loans should be managed to make the programs self-sustaining and to subsidize bargain-rate lending to the poorest countries and global projects such as vaccine research; lending to the poorest countries should emphasize education, health care, judicial reforms to improve the business climate, and financial-sector reforms to allow companies and consumers access to credit; and the institutions should continue to insist that borrowing governments adopt tough market-oriented policy reforms in exchange for loans and debt relief.
The FT Deutschland adds that Bundesbank Vice-President Jürgen Stark said the IMF should concentrate on its original aims and pull out of the Highly Indebted Poor Countries (HIPC) debt relief initiative, which should be left to the World Bank in the middle term.
The news comes as EBRD President Horst Köhler, widely expected to be the new IMF managing director, on Friday pledged to maintain a dialogue with the US Congress on policies to reform the Fund, Agence France-Presse reports. He sensed there was "broad support" for his candidacy to become the next IMF head, he said, adding that he expected the Fund's 24-member executive board to vote on his nomination this week.
Köhler arrived in Washington on Wednesday to confer with IMF executive directors and Summers, the story notes. "I am fully committed to an open discussion and dialogue with the US Congress," he is quoted as saying. [Referring to the Meltzer commission's report], he said: "I have a good feeling that out of all these contributions, comments and discussion about reform it is possible to sort out structures and conclusions which will strengthen the IMF."
In an opening statement, Köhler said that in future "the focus at the Fund should be more on crisis prevention," a position shared by Summers. But he hinted that he and Summers may not be in total accord on what to do at the Fund, says the story. "We reviewed the work of the IMF," he said of his discussions with Summers this week. "We had an exchange of views on reform priorities and we agreed (on) most of these items."
He likewise declined to express support for a proposal from the commission that the IMF cancel the debts owed it by the poorest countries. Debt relief, he said, "is, can be and should be an element in a strategy to secure global growth and to fight poverty." But he stressed that debt relief "without growth, macroeconomic stability, and structural reform makes no sense...I have a bit of a concern that this discussion of debt relief and debt reduction is not strongly enough combined with reform and macroeconomic stability."
Köhler also agreed that the procedure [for selecting the IMF managing director] is "not the best I could imagine...The process should be reviewed and improved."
Italian Treasury Minister Giuliano Amato has meanwhile called for a thorough overhaul of the method by which the head of the Fund is chosen, reports the Financial Times (p.1). Amato said the selection procedure had been peculiar and clearly objectionable-one in which the rest of the world looks on as Europe and the US compete to impose their own diktats." He added: "We have to invent a procedure in which at least a range of names is first offered to the IMF board to select [from]. There might even have to be an initial confidential stage during which a shortlist to be put to the IMF board is drawn up."
The Washington Post (3/18, p. A20), Los Angeles Times (3/18, p. C1), and the New York Times (3/18, p. A3) also report.
Separately, Alain Fetaya writes in a letter to the New York Times (p. A24) that ending the so-called gentlemen's agreement between the US and Europe about who should head the Fund and the Bank while introducing more meritocracy and transparency into the process would go a long way to legitimize the necessary existence of such organizations in the eyes of those who currently view them as fiefs of an old-boy network of rich developed countries.