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World: IMF-World Bank Meetings Deal With Reform, New Initiatives

  • Andrew Tully

For the past several years, the International Monetary Fund and the World Bank have been accused of generally mishandling their tasks of maintaining world financial stability and reducing poverty. RFE/RL correspondent Andrew Tully reports that reform was the primary theme at this year's spring meetings of the two institutions in Washington.

Washington, 30 April 2001 (RFE/RL) -- The International Monetary Fund -- or IMF -- and the World Bank are mounting reforms that they say respond effectively to the criticism that has beset them in the past few years.

At meetings of the Fund and the Bank over the weekend in Washington, both institutions announced initiatives focusing on financial-crisis prevention and improving the conditions they set for giving aid. They also pledged to mount a program to fight money laundering.

Yesterday (Sunday), the IMF's policy-making panel -- the International Monetary and Financial Committee -- endorsed a plan to give higher priority to crisis prevention. Until now, the Fund has focused its efforts on crises after they have occurred.

The Fund has been widely criticized for not anticipating the 1997 Asian financial crisis, which spread from Thailand throughout the region and eventually contributed to the Russian monetary crisis a year later.

The IMF committee also approved a new approach to drawing up conditions for countries that receive aid from the Fund. From now on governments will play leading roles in drawing up reforms necessary to receive IMF assistance.

Many countries say IMF loan conditions often are not based on a proper understanding of local economic factors. Ukraine in particular has made such complaints. Yuriy Yakusha, the executive director for Ukraine at the IMF, told RFE/RL before the meetings that this reform is of particular interest to his country.

The Fund also said it will lend its support to the fight against international money laundering. Both the IMF and the World Bank will make their expertise available to groups that focus on money laundering, and will help banks in client countries learn how to combat it.

Gordon Brown, the chairman of the IMF's policy-making committee, said the Fund and the World Bank are making the fight against such financial crimes a high priority.

"We are both taking seriously this issue and acting together to improve procedures."

These new initiatives were not the sole topics of the spring meetings, which are convened every year so that finance ministers and central bank presidents from the institutions' 183 member countries can assess the progress being made in various programs.

Yesterday, the Bank -- which focuses on fighting poverty -- published "World Development Indicators 2001," its annual report on development in poor and transitional countries.

The Bank says the fight against poverty is showing some success in many regions of the world -- with the notable exception of Africa. There, it says, the task is much more daunting. But the Bank's chief economist, Nicholas Stern, told a news conference that the fight against poverty in East Asia is progressing well.

"But there are signs of hope, there are grounds for hope. Some areas, particularly or notably East Asia, are already -- at least on the income goal -- virtually there in terms of halving the proportion of poverty from 1990. The main reason of that, of course, is the outstanding growth [of the economy] in China."

The World Bank report provides a wealth of information about the economies in Eastern Europe and Central Asia.

The document says the number of people living in these areas on no more than one dollar a day can be reduced by half if the area nations' economic growth continues as it has for the past several years. It says 7 million people in Eastern Europe and Central Asia lived on less than a dollar a day in 1990. Because of the transition from communism to a free market, that number rose dramatically to 18 million in 1998.

Both the Bank and the IMF say the economies in the two regions are now growing, despite a trend toward slower growth elsewhere in the world.

But the IMF's chief economist, Michael Mussa, warned on Thursday (April 26) that the outlook for Eastern Europe will be less optimistic if the European Central Bank, or ECB, fails to be more aggressive about stimulating the 12 economies of the European Union's euro-zone by lowering its interest rates. He said that's because Eastern Europe is dependant on Western Europe for much of its trade.

Mussa was not the only official putting pressure on the ECB to reduce interest rates. There has been similar pressure from Paul O'Neill, the U.S. treasury secretary. O'Neill has not explicitly urged the ECB to cut interest rates, but he recently said Europe should not regard itself as immune to the economic slowdown in United States and elsewhere in the world.

In response, ECB President Wim Duisenberg says that his top priority is not stimulating the euro-zone's economy, but holding down its inflation. Duisenberg says that is why the ECB's key interest rate has remained at 4.75 percent since October.

Because the World Bank and the IMF hold meetings in Washington every spring, the finance ministers from the Group of Seven leading industrial democracies, or G-7, take the opportunity to hold informal meetings as guests of the U.S. treasury secretary. This year, the ECB's response to the global economic slowdown was almost certainly one of the ministers' topics. But a formal statement issued after the three-hour meeting did not mention the issue specifically.

Instead, the statement merely declared the G-7's belief in the foundation for renewed global growth. The ministerial meeting had an optimistic character, perhaps because it came a day after a U.S. government report saying the American economy -- which profoundly affects the world economy -- had grown at an annual rate of 2 percent during the first three months of this year. This was about twice the rate that had been forecast.

The G-7 statement also welcomed the continued economic growth in Russia, but it urged Moscow to pursue institutional reforms to ensure that the growth is sustainable. It did not explicitly mention that Russia -- whose chief exports are oil and natural gas -- has been benefiting from the rising price of energy for the past year. But international economists have warned Russia -- as well as energy-exporting countries in Central Asia and the Caucasus -- not to be deceived by their current energy incomes. The economists say the price of energy can drop abruptly at any time.

At the same time, both the World Bank and the IMF remain champions of globalization, the movement that would eliminate trade barriers and allow all nations to share in world trade. But both institutions are more mindful of criticism that globalization benefits only rich nations and large multinational corporations.

At a news conference yesterday, IMF Managing Director Horst Koehler repeatedly referred to the inevitability of economic interdependence. Two days earlier (Friday), he had made a point of saying that one important theme of the meetings was to approach globalization with care.

"There is an over-arching theme. That is that this is all work in progress to make globalization work for the benefit of all."

It was opposition to globalization that brought out protesters who disrupted both the spring and autumn meetings of the Bank and the Fund last year in Washington and Prague. The protesters complained that the two institutions stand for an economic movement that displaces jobs, treats workers like property and places profits ahead of the environment.

This spring, the anti-globalization protests against the IMF and World Bank have been mild. Yesterday, fewer than 100 demonstrators gathered outside the headquarters of the two institutions. There was a heavy police presence to prevent a recurrence of last year's disturbances.