Stung by its failure to foresee financial crises in Mexico and elsewhere, the International Monetary Fund is establishing a more direct link to Wall Street and other capital markets, the Wall Street Journal (p. C13) reports.
The IMF, a lender owned by 183 member nations, will set up a department to monitor capital markets and take the pulse of stock, bond and currency markets in the hopes of spotting early signs that investors are losing faith in a developing country. "It will enhance the Fund's early-warning capabilities," said IMF Managing Director Horst Köhler.
Despite years of pleading from Wall Street that investors should have access to internal IMF information about developing nations' economies, the new effort will largely be a one-way street. The New York Times (p. C11) also reports on the Fund's new international capital markets department.
Agence France-Presse also reports, noting the IMF yesterday announced plans to beef up its surveillance and crisis management capacities, which recently came in for indirect criticism by US Treasury Secretary Paul O'Neill, reports AFP. IMF Managing Director Horst Köhler said the Fund would establish an international capital markets department that would consolidate operations now carried out by three divisions.
O'Neill last month chided the IMF and international financial community, saying they could do a better job of coping with financial crises, the story notes. "Crisis prevention needs re-invigoration," he is quoted as saying. "Crises strike when there is a failure to detect them early, or a failure to identify and implement the measures needed to avert them. With the knowledge and understanding available today, the international community should be able to do a better job of anticipating weaknesses and undertaking necessary steps to keep crises from taking full form."
O'Neill added that he attached "particular priority to a transparent and accountable IMF" as a means of containing regional financial difficulties that could have global implications. He said the surveillance of member economies by the IMF was critical to crisis detection and called on the Fund to publicize "key indicators of potential trouble."
Meanwhile, the Washington Post (p. E1) among all the occasions that the IMF has gotten egg on its face, last week's financial crisis in Turkey came at an especially awkward time. The Bush administration's economic team is just settling in, and some of its top policy makers are plainly skeptical about the wisdom of the large IMF-led bailouts that were supported by the US, the Fund's dominate member, during the Clinton administration.
Separately, the Financial Times (p. 14) says for a US administration whose main economic policymakers have a strong aversion to public intervention and financial bailouts, there could be few more exacting cases. US Treasury Secretary Paul O'Neill has made clear that he views with skepticism the value of bailouts led by the IMF, says the story. Privately, he has told the IMF that he expects the package agreed in December to be enough.
O'Neill may argue that the failure of last year's IMF crisis prevention efforts only underlines the shortcomings of rescue packages. Its failure is a particular embarrassment for the Fund, given that it ignored its own guidelines that suggest it should back either free floating exchange rate regimes or a "hard fix", such as a currency board.
But it remains to be seen whether O'Neill will have the last word, says the story. The Treasury has come under pressure from the state and defense departments to listen sympathetically to the Turks. US Secretary of State Colin Powell has encouraged President George W. Bush to telephone to Turkish Prime Minister Bülent Ecevit to offer support. Treasury skepticism about financial rescues runs counter to the conventional US view of Turkey's security importance to the US, the story says.
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