Panel calls for debt cancellation, overhaul of IMF/Bank

by Abid Aslam

WASHINGTON: The Meltzer Commission is calling on multilateral financial institutions including the IMF to cancel all their claims against the world's poorest, most debt-burdened countries.

In widely anticipated recommendations submitted to the US Congress on 8 March, the Commission recommended the most sweeping overhaul of multilateral lending since the IMF and World Bank were founded in 1946.

The IMF should stop lending to the poorest countries altogether and leave the job of financing long-term development programmes to the World Bank and regional development banks, according to the Commission. Instead, the Fund should be restricted to offering only short-term emergency loans to countries facing financial collapse.

"It is very important that the diverse Commission membership was unified in saying that the debts of the world's poorest countries should simply be cancelled," said Njoki Njoroge Njehu, director of the US-based 50 Years is Enough network of grassroots groups.

"Even more important is the Commission's recommendation that the IMF cease long-term development lending," she added. "This would prevent the IMF from restarting its destructive cycle of debt and harsh but failed austerity programmes."

The panel's members were unanimous in urging multilateral creditors to cancel all debt owed to them by 41 Heavily Indebted Poor Countries (HIPCs), and in seeking to clip the IMF's wings. But they split on most of the other recommendations.

A majority of members wanted the World Bank to stop lending money in Asia and Latin America to avoid duplicating the efforts of regional development banks there.

The World Bank also should end all financing for countries with investment-grade bond ratings - since they can raise their own capital in the private market - or with per capita incomes of more than $4,000 per year. This would free up money for countries truly in need, Commission chairman Allan Meltzer argues. More than 70% of World Bank loans go to 11 countries that already have access to capital markets, according to the report.

Furthermore, the global lender should scupper its private insurance arm, the Multilateral Investment Guarantee Agency (MIGA), which provides political risk coverage - insurance against nationalization and war, for example - for corporations weighing investments in emerging markets.

IMF officials declined immediate comment but Acting Managing Director Stanley Fischer was on record as opposing moves to shrink the IMF's remit - including its recent embrace of poverty eradication, announced in response to criticism from activist groups as well as some member states.

World Bank officials, taking their lead from agency President James Wolfensohn, dismissed the Commission's recommendations as based on "a fundamental misreading" of global development challenges and practice.

Bank staffers also faulted the Commission for ignoring what they called the agency's role as a 'catalyst' for investment in developing countries. In their view, the Bank's loans help to generate private interest in emerging economies and often act as magnets for private investment in specific projects.

Legislative hearings on the Commission's findings began on 8 March but political analysts for weeks have said that few, if any, of the panel's recommendations were likely to be adopted - not without significant revisions.

Nevertheless, the report would fuel ongoing efforts by Congress, the US administration and activists here to change the ways in which international financial institutions lend billions of dollars per year to developing countries.

Yet, for the most part, even reformers' reactions to the Commission report were decidedly mixed.

Environmentalists, who have been fighting to 'green' the financial institutions, found parts of the Commission report affirming, but complained about what they saw as insufficient attention to governance issues affecting the ways in which the agencies made decisions and were made to account for these.

The document "gives further weight to the growing evidence that these institutions have caused serious social and environmental damage," said Carol Welch, international policy analyst at Friends of the Earth.

"However, until the IMF's chronic lack of accountability and democracy is also dealt with, any reforms are unlikely to have a lasting positive impact," she added.

"The IMF's role should be limited to providing short-term emergency financing and the influence of the World Bank should also be reduced," said Doug Hellinger, executive director of Development GAP, a Washington-based think tank.

"But simply transferring some of their current functions to the regional development banks without explicitly terminating policy conditionality is to miss the point that the IFIs are there to transform those economies to the benefit of foreign investors," Hellinger argued.

And missing that point, he emphasized, "is to invite another round of economic disasters at the hands of so-called experts and special interests." (IPS)