By IPS Correspondents
PRAGUE, Sep 26 2000 (IPS)

International Monetary Fund president, Horst Kohler, says his vision of the institution he has just inherited is one that concentrates more on monitoring the international financial system and less on loan programmes.

“My ambition is not to have more and more lending programs but to place crisis prevention and thus surveillance at the centre of the IMF’s activities,” Kohler told the official opening of the Annual Meetings of the Board of Governors of the World Bank and International Monetary Fund (IMF) Tuesday.

“The Fund’s focus must clearly be to promote macro-economic stability as an essential condition for sustained growth,” says Kohler who assumed office in May.

“To pursue this objective, the Fund has to concentrate on fostering sound monetary, fiscal and exchange rate policies along with closely related structural reforms.”

Since the financial crisis that emanated in Asia in 1997 and swept across the world, the rich shareholders of the IMF have been pushing to turn the Fund into a surveillance institution to provide advice for mainly private investors venturing into emerging markets.

Some are also pushing for it to become a lender of last resort in times of crisis.

To achieve its new focus the institution is already carrying out a number of measures to assess the vulnerability of countries. It is pushing a host of international standards and codes governing fiscal and monetary policy, banking and accounting regulations.

These can be enforced on countries through loan conditions.

It is not clear how the IMF seeks to limit loan provision but it recently announced that it would shorten the repayment terms of its most frequently used credits to discourage over-use.

The term of the standby loans would be cut by a year from the maximum five years and that of the extended fund facilities would be reduced from 10 to seven years.

The IMF is under increasing pressure from movements and countries demanding deeper debt relief of the world’s poorest countries. Together with the World Bank, it is charged with delivering the enhanced Highly Indebted Poor Countries (HIPC) Initiative.

Last year it also added to its functions, the Poverty Reduction and Growth Facility, which it operates with the World Bank.

Critics charge that this has extended its role to micro- managing entire development programmes of developing nations in addition to giving micro-economic prescriptions through structural adjustment programmes.

In a policy discussion paper, Angela Woods of the Bretton Woods Project, says the problem is whether many of the standards and codes the IMF is pushing and which have been developed by the industrialised countries, are appropriate for developing countries given their many different stages of development.

Woods says it is also doubtful whether developing countries have the capacity to implement them nor whether it should be a priority to do so given the pressing need to address poverty issues. The Bretton Woods Project monitors the international financial institutions.

The Fund’s role and operations have been evolving considerably since its formation 55 years ago when its primary role was to promote international financial stability and foster economic growth.

A body commissioned by the US Congress, earlier this year, proposed that the Fund scrap many of its functions and return to its original role. The Meltzer Commission report suggested the Fund pull out of long-term financing and leave this to the World Bank.

The Meltzer Commission also suggested the Fund deny countries emergency funding in times of crisis unless they meet certain pre- qualification standards. The US is the major financier of the IMF.

The IMF is now improving its Contingency Credit Line (CCL). This is a fund open to middle income countries, which pre-qualify by getting their economies in shape. Established last year, the CCL has been slow in attracting any takers.

It makes financial assistance potentially available to countries concerned about their vulnerability to contagion, but not facing an imminent crisis.

“Despite calls for a more streamlined IMF, there appears to be little coherence and coordination between the reform agendas,” notes Wood.

Woods says the Fund is simply endeavouring to placate the various interests by accepting roles assigned to it whether or not it has the expertise to carry them out effectively.

“The result is that the IMF is becoming even more schizophrenic with conflicting priorities and inappropriate mechanisms to deal with a variety of financial problems.”

While the CCL provides a cushion for emerging markets, the poorest nations do not have a facility to borrow from in times of financial crisis, yet some of them have carried out substantial deregulations and are targets of international financial flows.

One of the major flaws of the reform process has been that developing countries have little power to influence it. For instance, Africa controls about five percent of the vote at the IMF, compared to the 45 percent wielded by the Group of 7 nations.

Trevor Manuel, South Africa’s finance minister says for the Fund and Bank to become effective in dealing with the problems of the poorest nations and to ensure that globalisation benefits all, they must “give a stronger voice to the shareholders of our institution.”

“We must ensure that the mechanisms exist for meaningful participation and greater transparency in decision making.”

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