Congress split over IMF, World Bank**
By Stephen Fidler
A report calling for a sharp contraction in the International Monetary Fund
and World Bank unleashed a strong partisan reaction in the US Congress
yesterday.
The report, from an advisory commission to Congress chaired by Allan
Meltzer from Carnegie-Mellon University was released at a press conference
on Capital Hill yesterday. Two leading Republican congressmen - House
speaker Dennis Hastert and majority leader Dick Armey - had earlier called
a press conference to welcome the report.
The tenor of the report has alarmed officials in both the World Bank and
the IMF, which have argued that much of the analysis on which it is based
is flawed.
Moreover, officials from these organisations suggest there has been a
disingenuous attempt to portray the report as s relatively innocent effort
to portray the report as a relatively innocent effort to return the
institutions to their original purpose- when the fact it would gut them,
and hurt many economies in the process.
The report suggests slimming down the IMF to focus on lending to pre-
qualifying countries during financial crises and proposes that the World
Bank be turned into a provider of grants for the world's poorest countries.
But it was attacked by Democratic lawmakers. Richard Gephardt, the House
minority leader, said the report "illustrates an extreme neo-isolationist
attitude" towards the IMF and World Bank.
"Instead of proposing thoughtful reform, the report takes a slash-and-burn
approach," Mr. Gephardt said.
The political impact of the report is not clear, but the welcoming of it
by Mr. Armey, a long-standing IMF critic, suggests the Republicans may try
to use it to attach further conditions on the IMF. This they may do as they
consider legislation that would help fund a debt relief initiative for the
world's poorest countries.
Jeffrey Sachs, one of two Democratic appointees on the 11-man panel who
signed on the majority report, which was approved by an eight-to-three
majority, has said that the administration made strong efforts to discredit
the report by trying to have it dismissed as a partisan affair. He has
rejected this, describing it as a good basis to begin examining the reform
of the institutions.
One official said the report's recommendation to turn the IMF into a
lender of last resort only to countries that have met certain financial
preconditions would have made the IMF unable to deal with many aspects of
Asian crises. Another said the report's suggestions would create bizarre
anomalies.
For example, Brazil's strong financial sector would- under the report's
proposals- have pre-qualified it for more than $100bn of IMF lending during
its crisis in 1998, without imposing fiscal or monetary conditions on that
lending.
Fund officials also rejected the idea that the IMF should withdraw from
poverty lending in Africa and in other poor countries. An IMF official
said that aid was almost never effective when the macroeconomic framework
in the recipient country was weak.
** Financial Times, Thursday March 9 2000
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