The International Monetary Fund (IMF) is again the target of verbal attacks in the U.S. Congress. RFE/RL's Andrew F. Tully reports that the latest barrage comes as the IMF struggles to find a new managing director.
Washington, 1 March 2000 (RFE/RL) -- The International Monetary Fund (IMF) faced criticism again in the U.S. Congress yesterday (Tuesday). And even the one man who defended the fund agreed that it is in need of reform.
The attacks began with Senator Jesse Helms (R-North Carolina), chairman of the Senate Foreign Relations Committee. Helms opened a hearing of his committee by saying he believes the IMF does more harm than good, and noted that there are many in Washington who believe it is time to "abolish" the fund, as he put it.
The first witness before the committee was Lawrence Summers, the U.S. Treasury secretary. He defended the IMF and other international financial institutions as vital to the world's economic health. But he added that the IMF has its flaws.
"To believe that these institutions are indispensable is not to say that they do not need to be changed."
Summers has repeatedly called for the IMF to shift away from long-term loans to governments in need and instead focus on short-term lending.
Yesterday, he said it is important that the fund be more open in how it conducts business. Otherwise, he said, it invites criticism that it is secretive and therefore sinister.
But the secretary also stressed that he believes that Asia would not have recovered from its recent financial crisis without the help of the IMF. And he stressed that the U.S. indirectly benefits from the fund's work through trade with countries that have improved their economies with the help of IMF loans.
Summers told the committee that the U.S. can help improve the global economy by coordinating well-reasoned support of the IMF while pressing for international trade that is more free and more fair.
"It is our hope that as we work to support strong international financial institutions, we will also be working to support strong, inclusive trade policies that are in the interests of all the citizens of the global economy."
Summers was followed by George Shultz, who served in the cabinets of Presidents Richard Nixon, Ronald Reagan, and George Bush. Under Reagan he was first treasury secretary of treasury and, later, secretary of state.
Shultz took a far more negative view of the IMF, but he did not call for its abolition. But he recommended that the IMF become an institution with far less power -- and far less money.
Shultz said there are three crucial flaws in how the IMF operates. First, he said, it encourages governments to expect financial assistance regardless of the government's behavior. Second, it is too intrusive on a country's political system in its conditions for loans. And third, he said, it has so much money that it sees money as the only way to solve problems.
He cited Russia as an example of IMF money being spent with few results. Shultz noted that while the money was pouring in, Russian businessmen and criminals were taking money out of the country. He said credible estimates put this "capital flight" at up to $350 billion.
And meanwhile, he said, the IMF is put in the difficult position of financially supporting Russia's war in Chechnya.
"There were very bad policies that were followed. And of course when the money goes to general budget support, it supports whatever the government is doing, including the war in Chechnya."
Shultz said the IMF is probably best suited as a "convener" -- helping needy governments find private financing -- rather than providing financing itself. In fact, he joked about an even leaner IMF:
"Let's call it an IMF without any money."
The hearing came as the U.S. and Germany are fighting over a leading candidate to succeed Michel Camdessus as managing director of the IMF. On Monday, EU finance ministers gave their formal endorsement of Caio Koch-Weser, a senior official of the German Finance Ministry. Hours later, the administration of U.S. President Bill Clinton said it could not support his candidacy.
In his testimony yesterday, Summers said the administration does not believe Koch-Weser has what he called "the requisite stature, the requisite expertise" to lead the IMF.