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FINANCE: IMF Inches Toward More Power Under Policy Review

Emad Mekay

WASHINGTON, Apr 15 2005 (IPS) - The International Monetary Fund (IMF), an institution often accused of being slow to reform, is moving to institute changes in how it conducts its operations, while expanding its controversial role in the global economy.

According to IMF and U.S. officials, the fund is rewriting its role partly through the so-called "mid-term strategic review," a study commissioned in late 2004 by IMF Managing Director Rodrigo de Rato to redefine the institution’s direction after coming under severe criticism for being too dogmatic.

"We have recently reassessed the way we do business in several key areas, and are following up with a range of reforms: most prominently in the areas of surveillance and conditionality, but also technical assistance and communications," said the report published on the Fund’s website Friday.

The draft proposal will be discussed at the Apr. 16-17 sessions of the IMF and World Bank policymaking bodies. The institution will provide a final report to officials at its high-profile annual meetings in September in Washington. The Fund says this is part of what it calls "a period of self-assessment".

"That is a work in progress that has been going on since at least the beginning of this year, and will continue for the rest of the year," said IMF spokesman Thomas Dawson at a press conference before the meetings, which draw dozens of finance ministers and central bank governors from across the globe.

On Thursday, a senior U.S. official said that a major component of the changes is a proposed monitoring arrangement that would allow the IMF, set up as a steward of the international monetary system after World War II, to signal its approval or disapproval of a country’s economic policies.

Outgoing Under-Secretary of the U.S. Treasury John Taylor, whose department controls the U.S. contributions to the IMF and its sister institution the World Bank, said the plan will give the institution a surveillance role over countries that do not borrow from the IMF.

The IMF’s appraisal will serve financial markets as a gauge of the economic health of certain nations.

Taylor told reporters that this arrangement, along with other changes such as the inclusion of collective action clauses in sovereign bond issues and 100 percent debt write-off for the poorest nations, would make the IMF more efficient and more productive. The collective action clauses allow a country to re-negotiate its debts with a "super-majority" of creditors.

"You’ll see financial diplomacy at its best," Taylor told reporters as he previewed the meetings.

Under the review, the Fund says, the central tenet of the IMF’s mandate will continue to be maintaining open economies in developing nations, exchange rate stability, balanced growth and monetary cooperation.

According to statements from IMF officials, the review will concentrate the Washington-based institution’s role as a forum for multilateral cooperation and a factory for global economic policies.

The review says the Fund should also continue to work with borrowers to change their economic performance, and avoid negative effects on other countries with more emphasis on "the quality and persuasiveness of our advice".

The Fund may be also moving to fine-tune its operations by focusing on issues "that matter the most for each country."

This could be in answer to accusations by critics that the IMF and the World Bank have been promoting one-size-fits-all policies of trade liberalisation, public spending caps and deregulation regardless of different situations from one country to the other.

"This applies equally to all of our activities, be it surveillance, lending, or technical assistance," de Rato said in a speech previewing the meeting earlier this month.

Under the review, the IMF will not relinquish its role in providing "temporary" loans to help borrowing countries address balance of payments difficulties, despite calls from rich nations that the Fund no longer give out large loans.

The review also recommends that members resolve persistent criticisms of the IMF’s governance, particularly, the under-representation of developing countries in its decision-making processes.

The Fund review will also request maximum efficiency and accountability in its operations, officials say.

Both the World Bank and the IMF have been on the receiving end of admonitions from some development organisations, the United Nations and the activist community for failing to broaden participation by developing countries, as agreed in international forums.

They say that the two institutions have made no progress on long-time demands to give a greater voice to developing nations in changing the quotas, capital shares and voting rights of member countries.

The World Bank and IMF were formed in Bretton Woods, New Hampshire at the end of the Second World War. The Bank and the Fund now each have 184 members, including developed and developing countries, and 24 board members who represent countries or groups of nations.

"We certainly are committed …to help our members to resolve difficult issues that sometimes appear in the area of governance, of the Fund’s governance, notably the voice and participation of emerging markets and developing countries in decision-making," Rato told reporters on Thursday.

"We have certainly stressed that this should be part of the strategic review of the Fund," he said.

The review is not final and will open for discussions from stakeholders.