Scaling Back the IMF
Next week the International Financial Institutions Advisory Commission will again be holding hearings in Washington.
Well, it's unlikely that 1 in 100 Americans have ever heard of this group, let alone know what it does. But its work could have significant implications for everyone with a stake in today's global economy.
The 10-member commission was created last summer by Congress to look at seven multilateral organizations. Together, these organizations make up a major chunk of the system that regulates and guides international finance and commerce.
They include the World Bank and the World Trade Organization, the latter now known by its recent tumultuous meeting in Seattle. Included, too, are regional development banks.
But the star of the lot is the International Monetary Fund (IMF). It rides to the rescue with huge loans when nations get into financial trouble, la Indonesia or Russia. The commission is mulling its future.
Some prominent conservatives, including Republican presidential hopefuls Steve Forbes and Gary Bauer, would like the IMF shut down. Liberals, including a host of nongovernmental organizations, charge the IMF with imposing overly severe monetary and fiscal policies on nations like Indonesia and Brazil.
Some members of the advisory commission, also, would like to see the IMF abolished. But its chairman, Allan Meltzer, an economist at Carnegie-Mellon University, is less harsh. He sees a more restricted role for the IMF as both politically feasible and more suited to today's world with its massive flows of private capital.
Over time, the IMF has mutated. It was created in 1944 to manage a system of fixed exchange rates between the currencies of the major industrial nations. That system fell apart in the early 1970s when floating, or at least more flexible, exchange rates came into favor. IMF loans were no longer needed by the rich nations.
But the IMF adapted. It turned to helping manage the financial crises in developing countries. It also has taken on the transition of the former communist countries of Eastern Europe and the Soviet Union to free enterprise. This was a convenience to its powerful members, especially the US.
The IMF has further attempted to use its funds and advice to tackle world poverty. Here it has tended to overlap with the World Bank.
A consensus appears to be developing that the IMF should focus on what US Treasury Secretary Lawrence Summers calls its "core competencies." He said on Dec. 14 the IMF should promote "financial stability within countries, a stable flow of capital between them, and rapid recoveries following any financial disruptions." This makes sense. Financial stability is usually requisite to shrink poverty. One topic of next week's commission hearings will be the huge income inequities in the world. The commission is to report in March.
Details of any proposed change in the IMF are crucial, and neither secretary Summers nor Mr. Meltzer have offered many yet. Moreover, other member countries of the IMF will have their say. But an IMF role as an emergency financier for nations in trouble sounds right. Certainly, the IMF should not be shuttered.
(c) Copyright 1999. The Christian Science Publishing Society