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World: Bankers Propose Private Sector Input At IMF

Washington, 9 April 1998 (RFE/RL) -- The global organization of commercial banks, major investment funds, and insurance companies, says it's time the private sector was involved in some of the deliberations of international financial institutions.

In a letter to the International Monetary Fund's policy-making Interim Committee, the Institute of International Finance (IIF) proposed that the fund create a Private Sector Advisory Council to facilitate closer cooperation and consultation between the public and private sectors.

The head of the IIF, Charles Dallara, told a press conference in Washington Wednesday that because private capital flows now far outpace official lending to emerging market countries, it's time this sector is consulted about policies.

"The sheer scale and scope of private finance in emerging markets today makes it essential that constructive approaches involve the input of market participants," he said.

The top leaders of the IMF and the World Bank will gather in Washington next week for the regular spring meetings of the two institutions. The Interim Committee, composed of 24 finance ministers representing all IMF member countries, will meet Thursday to review fund operations.

Dallara said that beyond the proposal for a private sector advisory panel, he would like to see top commercial financial leaders invited to participate in the IMF/World Bank meetings as soon as next year. They should be "coming together to exchange views and to find common ways forward," he said.

IMF officials have not yet reacted to the IIF proposal, but sources at the fund say it is already deep in an internal review process of its operations, its approach to monitoring member nation's economic developments, and its mechanisms for dealing with potential crises like that in East Asia.

The World Bank, in its own recent reorganization, has greatly expanded its consultations and contacts with private sector groups, including organizations which traditionally only could mount picket-lines outside World Bank meetings.

The bank and the IMF are restricted by their Articles of Agreement when dealing with governments. The bank has a special affiliate, the International Finance Corporation (IFC), which handles the private sector, making loans and investments in firms around the globe. The bank, while restricted to lending only to governments, has developed programs -- such as guarantees through local governments for commercial loans -- to allow it to be more supportive of the private sector.

The IIF's Dallara says the Asian crisis has shown how important it is for both the public and private sectors to work together. He said private financial concerns -- banks and other lenders and investors -- certainly contributed to the region's problems by quickly pulling out short-term credits.

But there is as much fault with governments, he said, which did not require transparency and actually encouraged short term loans instead of promoting longer-term investment.

Dallara said that of the $90 billion in private funds that went into East Asia last year, only seven percent was for equity investment. By comparison, he said, more than 60 percent of similar flows to Latin America was for more stable equity investment.

Greater consultations with private financial leaders, said Dallara, would "deepen the IMF's understanding of market forces and the diversity of views in the markets."