Meltzer Commission pushes for deeper IMF, World Bank reforms
by Gumisai Mutume
Washington, 8 Mar 2001 (IPS) -- Members of a US congressional commission, which last year recommended radical reforms at the World Bank and the International Monetary Fund (IMF), have urged the new Bush administration to push for deeper reforms at the institutions.
Addressing the Joint Economic Committee (JEC) of Congress Thursday, Allan Meltzer, a conservative economics professor who headed the advisory commission, said that the new government, which took office in January, should recognise that the best time for lasting reforms is when there are no crises. And that time is now, he said.
“We cannot afford and should not continue a system that generates expensive crises with extraordinary frequency,” said Meltzer, who headed the International Financial Institution Advisory Commission, set up by the US Congress to advise on reforming seven international financial institutions (IFIs).
“We must rid ourselves of a system that imposes changes that countries do not want and will not enforce, that brings demonstrators to the streets protesting real and imagined wrongs, and that is ineffective.”
The 11-member commission, better known as the Meltzer Commission, described the World Bank and three regional development banks as costly, inefficient, bureaucratic and unable to carry out their mission of poverty alleviation under current structures.
It recommended leaner development banks limited to core areas such as technical assistance and administering poverty alleviation grants instead of loans to the poorest countries.
The Meltzer Report, released in March last year, castigated the IMF for bailing out emerging markets with massive injections of money in times of crisis.
It recommended that there be a clear division of labour between the Bank and the IMF, with the IMF focussing solely on short-term crisis lending, and collecting and disseminating financial data to its 182 members to mitigate the risk of crises.
The majority of the Commission’s members were Republican, picked by House majority leader Richard Armey.
At the heart of the commission’s creation were Republican criticisms of the IMF’s crisis intervention in South East Asia in the late 1990s and conservative Republican arguments for a substantial reduction in the mandates of the IFIs - which would result in a reduction of US contributions to the institutions.
However, in assessing the feasibility of implementing the Commission’s proposals last year, the Treasury Department, then headed by Democrat Larry Summers, warned that many of the recommendations risked undermining the ability of the IMF and multilateral development banks to respond to crises or push market-oriented reforms in developing countries.
Now, the political environment has changed and all eyes are on how the government of George W. Bush will deal with the IFIs and what it will do with the recommendations of the Meltzer Commission. Some fear that the report could become the US blueprint for future reforms of the institutions, in which the US, is the single largest minority share-holder but can block decisions on a range of issues. Apart from its share-holding, the US treasury exercises enormous control and influence over the IMF and the Bank in a variety of ways.
Meltzer says that major shareholders should immediately take two steps - require an independent management audit to appraise the World Bank and order a performance audit of Bank lending and aid.
Justifying the need for concern among donor nations, Meltzer pointed to a recent leaked memo in which Bank staff charged that the Bank today “has no focus and is driven by an ever growing list of mandates imposed on it through a variety of means ... Bank President’s favoured subjects ... board sentiments ... public pressures, ideas generated by internal constituencies and even fads”.
“No initiative that starts as a pilot is ever considered a failure because of a lack of any honest evaluation,” noted the memo, which Bank officials brushed off as having emanated from a tiny, disgruntled section of the Bank staff.
The Bank spent about $200 billion on poverty alleviation programmes between 1987 and 1998, yet the number of people living on less than a dollar a day - the Bank’s measure of poverty - has registered only a slight drop from 28 to 24% of the world’s population.
Turning to the IMF, Adam Lerrick, director of the Henry J. Gailliot Centre for the Study of Public Policy and senior advisor to the Meltzer Commission, told the JEC hearings that there has been no change in official conduct since bailouts entered the international consciousness in 1995 with Mexico.
Then, the US Treasury led a $50 billion IMF bailout, which it said was to be a one-off event. But as new crises emerged, the Fund has continued to resort to the emergency rescue packages and thus, critics charge, absorbing the loss of bad investment decisions from private sector investors.
In 1997, the IMF bailed out Thailand with $17 billion, Indonesia with $34 billion, and Korea with $57 billion. The following year, Russia was to receive $16 billion and Brazil, $42 billion. Most recently, Turkey received a $10 billion rescue package and Argentina, $20 billion.
Charles Calomiris, another Meltzer Commission member and professor of finance and economics at Columbia University, noted that there have been some commendable reforms at the IMF, such as releasing a growing amount of official documents to the public.
However, negotiations between member countries and Fund staff over loan agreements remain secret and Calomiris says it may be useful to preserve secrecy for a time to facilitate sensitive negotiations but it would be highly beneficial to release this information after a certain period.
JEC chairman Jim Saxton, who has been a constant thorn in the flesh of the IMF and the World Bank, noted that “under Congressional pressure, including proposed legislation, the IMF did finally adopt some basic accounting controls and loan safeguards last summer, but their effectiveness remains to be seen”.
“In short, while some limited progress has been made, much more remains to be done.”