Should IMF, World Bank be lightning rods for ire?

Ultimately, the financial goliaths answer to others. It's control that really needs attention.

Two of the world's most important organizations, the International Monetary Fund and the World Bank, have been experiencing something of a schoolyard phenomenon - a pile-on.

Demonstrators, academics, church and other non-governmental organizations (NGOs), members of Congress, as well as trade unions - all have jumped onto the two institutions with wide-ranging attacks and criticism.

"Unfair," says John Sewell, president of the Overseas Development Council (ODC), a Washington think tank.

It's not that he believes the IMF and the bank are above criticism. Only last week, an ODC task force he co-chaired called for a number of IMF reforms.

One of the 14-person group's more controversial proposals urges the United States to give up its veto in the 182-nation fund. That idea may get a dim reception in Washington, where many tend to treasure power.

But Mr. Sewell holds that many attacks on the IMF and the bank by demonstrators are misdirected.

For instance, if NGOs want more foreign debts of the most-impoverished nations cancelled, they should press Congress and other legislatures. The IMF basically does just what it's told to do by the industrial nations.

Since the fund and the bank were created in 1944 at a UN conference, the world has changed greatly.

So Sewell welcomes the great public debate over these institutions, which has followed their controversial rescue role in the financial crises since 1997 in Asia, Brazil, and Russia.

"They need rethinking," he says. But he sees these institutions remaining vital to world welfare for at least another 30 or 50 years.

The idea to abolish the US veto stems from a shift in the role of the IMF. At first, the fund used its financial resources primarily to help out industrial nations like Britain and Italy whenever they had an international payments crisis. Foreign exchange rates were fixed then.

In 1973, however, the major nations shifted to a floating-exchange-rate-system where demand and supply set the price of a currency. The IMF lost its original mandate of maintaining stable exchange rates. Its role with the industrial nations became almost ceremonial.

So the IMF's clients became the poorest nations to which no foreign commercial bank would lend, and middle-income countries in financial crises.

In the past, the industrial nations seeking IMF help felt they were part owners of the institution. They had a say in its decision-making.

Today, the IMF clients - the poor and middle-income countries - have little influence.

There is some truth, Sewell says, to the allegation that the US Treasury runs the fund, that it serves to a degree American foreign-policy aims.

Though Sewell praises Treasury Secretary Lawrence Summers for his "broad-ranging perspective on foreign-policy issues," he holds it necessary for the present client nations of the fund to feel they have some "ownership" of its activities, some influence on management.

Just as an individual needing "reform" does better if he has the sense that he has some control of the process, nations, too, don't like to be dictated to.

"This lack of representation gives the impression that the IMF is dominated by the richest countries," says the ODC report.

"This impression is harmful to the effectiveness of country/fund relations," it says.

Part of boosting the fund's legitimacy as an impartial body would be to rebalance voting power on the fund's executive board.

If, for example, the vote were allocated closer to the "importance" of nations today - as indicated by their purchasing power - China's voting share would rise from 2.2 percent to 10.3 percent.

The big loser would be Europe.

Because of its economic might, the US, with its present 17.5 percent of the vote, would likely keep its veto.

It takes 85 percent of the voting power on the board to get approval of important IMF decisions. To make the fund more genuinely participative for other nations, the US would have to agree voluntarily to a number lower than that 85 percent.

The US already has no veto in various multilateral development bodies, including the World Bank.

Without a veto, "the world would not end" for the US, Sewell says.

(c) Copyright 2000. The Christian Science Publishing Society

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