Global Policy Forum

I.M.F. Is Expected to Ease Demands

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By Joseph Khan

50 Years Is Enough Network
June 29, 2000

The International Monetary Fund, which has ordered developing nations to enact wrenching reforms as the price for emergency aid in recent years, is likely to curtail the demands it makes of clients who borrow money in the future, a senior fund official said today.


Streamlining the conditions the I.M.F. imposes on borrowers is one of the changes Horst Kí¶hler, the fund's new managing director, is weighing as a panel he commissioned to study the role of the agency completes a draft report. Some government officials, academic experts, and private charity groups criticized the fund for requiring that Thailand, South Korea and Indonesia overhaul their economies during the Asian financial crisis in 1997 and 1998.

The I.M.F.'s demands for broad changes were captured in a widely reprinted 1997 photograph of Michel Camdessus, the fund's recently retired managing director, peering over the shoulder of former President Suharto of Indonesia as Mr. Suharto signed a lengthy letter of intent to receive emergency aid. The fund required Indonesia to overhaul its transportation and energy sectors and end price subsidies on some commodities, changes that fund officials now say might have been too much for Indonesia to swallow.

Mr. Kí¶hler, who visited Indonesia during a tour of Asia earlier this month, has said that he wants the fund to focus on what he calls its "core competencies."

The senior official said today that the fund's main goal during a crisis should be to restore investor confidence quickly by helping troubled nations manage their finances and currencies. Dictating more sweeping economic changes as the price for assistance potentially works against that goal, the official said.

"Some people say that the fund has acted like a Trojan horse to impose the economic system of the West," the senior official said. "There may be more of a possibility for countries to find their own path."

Mr. Kí¶hler, a German who took over as I.M.F. managing director in May, served previously as head of the European Bank for Reconstruction and Development and, before that, as a senior economic aide to Helmut Kohl when he was the German chancellor. He has said that one of his top priorities is to sort through several conflicting proposals for overhauling the I.M.F., including a plan put forward by Treasury Secretary Lawrence H. Summers and another by a Congressional commission.

Mr. Summers suggested that the I.M.F. should limit its long-term lending programs and discourage repeat borrowing by developing nations, the better to preserve its capital to fight financial crises. The Congressional commission advocated a much more radical overhaul, which was dismissed by both the fund and the Clinton administration.

A senior Clinton administration official said today that he believed the I.M.F. overhaul process was headed in the right direction.

The Clinton administration strongly supported the fund's role during the Asian crisis, though Mr. Summers has subsequently said that some of the fund's initial demands on crisis-stricken nations were too severe. Administration officials today declined to comment on the fund's plan to streamline the requirements it imposes on developing nations during times of crisis.

The I.M.F. board plans a retreat in mid-July to discuss changes, the senior I.M.F. official said. The fund has also arranged a retreat with the World Bank, its sister lending agency, where officials will try to sort out things the two bodies should do together and others that they should do separately.

Many broad economic changes that the fund has required its client nations to carry out in recent years have in fact been designed by the World Bank, I.M.F. officials said. Fund officials now feel their lending programs should not be used as leverage to advance sometimes hotly disputed World Bank ideas, especially those involving the sale of state-owned companies.


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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.