US wants overhaul of global financial agencies By EDWARD ALDEN
The US said yesterday that it wanted a broad overhaul of international financial institutions that would help stabilise emerging markets and reinvigorate economic growth in the world's poorest countries.
John Taylor, the top Treasury official on international affairs, said the threat of future terrorist attacks made it imperative that new ways be found to end the poverty that "can be a breeding ground for terrorism".
He called for the World Bank to restructure its aid programmes to focus on boosting economic productivity, and said the International Monetary Fund should find a way to end the unsuccessful practice of bailing out failed economies.
The comments, in advance of this weekend's meeting in Ottawa of finance ministers from the G7 industrialised countries, are the clearest statement yet of the broad changes the US is seeking for international financial institutions. Paul O'Neill, Treasury secretary, said yesterday that the proposals would be high on the agenda for the Ottawa meeting.
Argentina has proved to be the key test case for the new approach the US favours. The Argentine crisis has shown that contagion fears have receded sharply since the Asian financial crisis, creating an opportunity to end the pattern of crisis and bailouts, Mr Taylor said.
The IMF now needs to focus more narrowly on the conditions that will prevent future crises in emerging markets rather than on assembling large bailout packages after such crises occur. Only by limiting IMF assistance, he argued, will countries be forced to take responsibility for their own economic decisions. Further, he said the IMF should stop interfering in the social policy choices of governments and concentrate on fiscal, monetary, exchange rate and financial sector policies.
Mr Taylor also endorsed calls to create a new structure for resolving debt crises. But he did not back a current IMF proposal for creating a legal halt on debt repayments, urging instead efforts to facilitate an orderly restructuring between sovereign countries and creditors "without a strong IMF role".
On the World Bank, he said the US wanted to see "measurable results" from aid programmes such as boosting productivity or increasing the number of children in school. He said the US would continue to press its proposal to convert into grants half of the current World Bank loans to the world's poorest countries.
The US plan has been criticised over fears that it could reduce overall aid flows. But Mr Taylor said the current US budget proposes a rise in US aid contributions as long as certain performance benchmarks are met.
Full text of Taylor's statement: http://www.treas.gov/press/releases/po996.htm