Development & Aid, Economy & Trade, Headlines, North America

POLITICS: Bush Official Defends IMF, World Bank Reform

Emad Mekay

WASHINGTON, May 19 2004 (IPS) - The Bush administration came out strongly in defence of the World Bank and the International Monetary Fund (IMF) Wednesday, two institutions accused of being slow to reform.

During a rare hearing at the U.S. Senate, Undersecretary of Treasury John Taylor said his administration, whose country is the single largest shareholder in almost all global multilateral financial institutions, is satisfied with the pace of change at the two Washington-based institutions, and argued that key changes have been implemented.

That stance contradicts what many independent economists and civil society groups, which took to the streets during the joint IMF-World Bank meetings here in April, say about the bodies.

The groups say that despite pressure, lobbying and years of campaigning, it is still mostly business as usual at the Bank and IMF. The groups are fighting to change how the international financial institutions (IFIs) lend billions of dollars each year to developing countries.

"I’m happy to report that an enormous amount of progress on this reform agenda has been made, especially in the last year and a half," Taylor told a hearing of the Senate committee on banking, housing and urban affairs.

The U.S. official said the reforms include new collective action clauses in sovereign debt, which allow a country to re-negotiate its loans with a "super-majority" of creditors. He also pointed to the IMF’s adoption of limits on emergency lending to countries in financial crises.

"Conditionality", the set of conditions the IMF imposes on borrowing countries, has also been narrowed substantially, according to Taylor.

"They don’t have hundreds of thousands, or even thousands or hundreds of conditions now; they’ve narrowed their focus," said the official, who is the principal adviser to the Secretary of the Treasury on international economic and financial issues.

New at the World Bank is the use of grants instead of loans and a system for measuring results, added Taylor.

The two lenders are now more focused on their respective "core expertise, with a better emphasis on dividing the labour", so that the IMF focuses on reducing global financial risks while the World Bank looks to increase economic growth and reduce global poverty.

The Treasury official also defended the Bank against a congressional report last week that said 100 billion dollars of the institution’s loans never reached their intended customers – developing countries – and were lost to corruption.

"But the hundred billion dollars is not something I find at all substantiated at this point. We’ll be happy to look further and further into it, but it doesn’t sound plausible at this point," Taylor said.

It has been several years since the full Senate committee has examined the two Bretton Woods institutions, set up in 1946 following the Second World War to help stabilise the international financial system.

Washington’s moves concerning the two IFIs are closely watched because the United States is the single largest shareholder in almost all multilateral financial institutions.

According to the Congressional Budget Office, the U.S. share in the World Bank – which lent 18.5 billion dollars last year – is roughly 14-22 percent, while its share in the IMF lies between 17 and 22 percent. The IMF lent 40 billion dollars in 2003.

But while some senator and experts at the hearing acknowledged some improvements at the IMF and Bank, they said the two institutions have a long way to go.

"These steps are a good start, but only a start," said Allan H Meltzer, a professor at Carnegie Mellon University.

Meltzer led a congressional commission set up in 1998 that drafted a report recommending changes to the two institutions. The document suggested some of the most sweeping changes at the lenders since the IMF and World Bank were founded.

But on Wednesday, Meltzer said that important changes are yet to be made.

"The most important single change remains undone," Meltzer said, adding, "the IMF should move from its ‘command and control’ approach to one that relies on incentives."

"I believe that reform occurs when the country’s leaders, a majority of its citizens, or both, want reform. Reform cannot be imposed successfully by external technocrats without local support," he added, referring to loan conditionalities.

Meltzer also said he looked forward to new leaders at the two bodies. The IMF has just named Spain’s Rodrigo Rato as its new managing director, while the Bank will name a new president next year. "New leadership at the IMF and the end of James Wolfensohn’s term at the Bank in 2005 provides an opportunity for new leadership, new approaches and much needed reform," Meltzer said.

Some senators also said they are concerned that changes are slow to come.

"I’m concerned that we have not made very good progress in terms of implementing the recommendations of that (Meltzer) commission," said Sen Mike Crapo, a member of President George W Bush’s Republican Party.

"I was convinced that the commission was on the right track in getting us the kinds of recommendations that we needed to follow, in terms of getting more accountability, and frankly, more understanding of what is happening inside the World Bank in particular, but the International Monetary Fund as well," he added.

"I’m very concerned that we have not, either as a Congress or as the administration, taken the necessary steps to be aggressive enough in the reforms with regard to the recommendations that we have already received that, to me, seem to be very evident in terms of their need," said Crapo.

Taylor made some suggestions for further change, none of which appears to meet any of the demands of the social justice movement, which is calling for more socially and environmentally responsible lending that takes account of human rights and focuses on poverty reduction.

One possibility, said the official, is a new, non-borrowing programme at the IMF, which would introduce technical and economic advice to borrowing nations without saddling them with loan "burdens".

Taylor suggested that the World Bank could strengthen its fight against poverty by further increasing its grants – as distinguished from loans – for the poorest countries, as well as by increasing debt relief.