Little progress on crisis prevention, debt relief
After all the rhetoric about establishing 'a new global financial architecture', the IMF has made little progress in taking effective action to prevent future currency crises or provide debt relief for the world's poorest countries.
by Abid Aslam
THE International Monetary Fund (IMF) will have its work cut out in coming months if it is to make any breakthrough on how to prevent future currency crises and provide debt relief for the world's poorest countries.
The IMF's key policy-making Interim Committee ended day-long talks in Washington late on 27 April with no clear strategy to head off crises like those that have rocked East Asia, Russia and Brazil over the past 20 months - plunging one-third of the world into recession.
Instead, the 24-nation committee issued a 10-page final communique at the end of its Spring Meeting pledging to keep working to bridge the gaps between competing proposals from the US and other rich countries.
That followed blistering remarks to the committee by Rubens Ricupero, secretary-general of the United Nations Conference on Trade and Development (UNCTAD), who complained that 'delay and denial have come to dominate the issue' of reforming the rules and institutions that make up the 'global financial architecture'.
'At our last meetings in September, the severity of the Asian crisis and its rapid spread to economies inside and outside the region with strong fundamentals seemed set to galvanise the international community into concerted actions,' Ricupero said in a prepared speech.
'For a few weeks it appeared that the need for a new financial architecture would translate into concrete proposals, that a looming catastrophe would finally conquer inertia,' he added. 'This was wishful thinking.'
The bounce-back on Wall Street in late 1998 has meant 'a return to business as usual'. The efforts to redesign the financial architecture had given rise to a proliferation of meetings, inflation of communiques, multiplication of groups and fora. But just when developing countries were becoming increasingly vulnerable to external financial pressures, there has been a 'reluctance' to accommodate their concerns and interests - perhaps because it has fallen 'short of an optimum crisis... grave enough to force the mighty to finally do something without being so serious as to render any action ineffective.' There were some who did not shy away from saying there was nothing wrong with the architecture and at most there might just be a small matter of 'improving the plumbing'.
'However,' Ricupero added, 'if the crisis comes back with a greater force, a possibility which we do not exclude, the advocates of denial may find themselves absorbed, like the crew of the Titanic, in rearranging the furniture on the deck of a sinking ship or playing the Transparency Waltz for passengers drowning for lack of lifeboats.'
The committee's communique nevertheless trumpeted a new 'Contingency Credit Line', set up to provide billions of dollars in 'preventive' bailouts to countries deemed by the IMF to be at risk of speculative attack from investors despite having Fund- approved economic policies.
The credit line will prove to be 'an important defence against financial contagion (and a) key component of a preventive strategy', committee chairman and Italian treasury minister Carlo Ciampi told a news conference on 27 April night.
Agreement was not reached, however, on how to get the private sector to support debt 'stand-stills' for crisis-stricken countries - let alone on how to get private financiers to share the costs of future bailouts.
The United States favoured a market-oriented, case-by-case approach to the problem while Britain and other members of the Group of Seven (G-7) richest countries wanted to establish a uniform set of rules which private investors would have to follow in the event of a meltdown.
For its part, the Institute of International Finance, representing some 300 leading banks and finance companies, said before the 27 April meeting that its members would not accept any such compulsory measures.
Turning to debt relief, IMF Managing Director Michel Camdessus reported 'practically unanimous consensus' among committee members that the steps needed to finance the three-year-old Heavily Indebted Poor Countries (HIPC) debt initiative 'certainly will entail some sales of gold'.
Camdessus was referring to long-standing proposals to sell a portion of the IMFÕs 103-million-ounce gold reserves. The proceeds then would be invested and the resulting interest income used to fund the HIPC initiative.
Key G-7 members, notably Germany, have dropped their previous opposition to the idea of a gold sale but how much should be sold remained subject to debate.
Fund officials favoured selling about five million ounces while the United States, which had yet to pay in its share for HIPC, wanted to cash in about 10 million ounces or more than $2.8 billion worth.
Japanese finance minister Kiichi Miyazawa, in prepared remarks, proposed going beyond 10 million ounces. Sources privy to the committee discussions said Japan floated the idea of selling as much as 20 million ounces of IMF gold. That alarmed gold-producing South Africa, which feared such a large sale would result in market disruption.
G-7 Cologne summit
Agreement on a final figure would be reached 'soon' and the IMF would then proceed with the sale 'in an orderly and prudent way', Camdessus said. No action was expected before the G-7's June summit in Cologne, Germany.
Committee members asked the IMF and World Bank to develop 'specific proposals to strengthen' the HIPC initiative to 'provide a clear exit from unsustainable debt burdens'.
This followed discussions in which Canada and others cited pressure from debt-relief advocates including the international, non-governmental Jubilee 2000 coalition, sources said.
However, enhancements would be designed to deliver relief to 'countries in need in a way that strengthens incentives for the adoption of strong programmes of adjustment, reform and good governance', the committee's communique said.
That would strengthen the IMF's hand in extending debt relief only to countries deemed to be performing well under its Enhanced Structural Adjustment Facility (ESAF) - and inflame protest from citizens' groups.
More than 40 such organisations on 27 April delivered an open letter to the committee, asserting that 'debt relief linked to structural adjustment is no debt relief at all'.
'We applaud the notion of turning a static resource - the IMF's gold stocks valued at about $30 billion - into assistance to impoverished peoples,' said the multinational band of groups. ESAF programmes, however, 'have been shown to increase poverty and debt...(yet) the IMF wants to hijack over 60% of the proceeds from gold sales to fund ESAF'.
'To hold debt cancellation hostage to ESAF is an obscenity that civil society around the world will not tolerate,' they declared. - IPS
The above article by the Inter Press Service appeared in the South-North Development Monitor (SUNS).