IMF Faces Role Crisis as Leaders Meet

The annual report of the International Monetary Fund has never been a real spellbinder, but this year its authors may have outdone themselves: The volume is so lackluster that even veteran IMF watchers had difficulty spotting anything new.

Inadvertently, perhaps, the lapse may be symbolic. Only a few years ago, the 152-country IMF was a major force in global economic policy-making, at the center of efforts to manage the global debt problem.

But today, critics say the fund seems to be decidedly on the sidelines and searching for a role. The arrears on its loans to developing countries are mounting. Its managing director, Michel Camdessus, a former French treasury official, is under fire.

“They really don’t have nearly as much role as they had in 1983, ’84 and ‘85,” said Roger M. Kubarych, a former Federal Reserve Board policy analyst now with Henry Kaufman & Co., a New York economic consulting firm. “Should they play a larger role? I don’t think they can make a very convincing case.”

The outcome is important because the IMF, as the world’s premier international economic organization, is charged with overseeing the world economy and managing the global debt situation. If it is not functioning at its peak, those aims are set back.

Now the 45-year-old IMF, whose four-day annual meeting here beginning Monday will be attended by finance ministers from around the world, is facing some major decisions that are certain to affect its role for years to come.

Contending that the fund needs more resources, Camdessus has mounted a vigorous campaign to persuade the IMF’s 152 member governments to finance a doubling of the institution’s overall lending pool, which has remained unchanged at $120 billion since 1983.

The managing director argued at a press conference last week that the doubling is needed “in order to give confidence to our members that if they come with good policies, the support of the international community will be behind them. The fund is a monetary institution. It has to have sufficient liquidity” to do its job.

But the United States, which is by far the IMF’s largest donor and thus has the most say about any increase, is dead set against a doubling of the IMF’s resources and is seeking to delay the decision at least until the end of the year.

The Bush Administration asserts that the IMF has all the money that it needs to meet current demands and has not spelled out adequately what it might do with the additional funds. And it says Congress would not accept Camdessus’ proposal even if the Administration pushed it.

The IMF “hasn’t been performing well enough to justify a 100% increase,” said Henry R. Nau, a former National Security Council strategist now at George Washington University. Camdessus’ proposal, he asserted, “is way out of line.”

Dissatisfaction Runs Deep

To critics, the most recent evidence of the IMF’s shortcomings showed up during last summer’s negotiations between Mexico and commercial banks over how to restructure and possibly reduce that country’s $107-billion foreign debt.

Jacques de Larosiere, the IMF’s managing director from 1978 to 1987, was a key player in hammering out such accords, often making the difference when the two sides could not get together on loan packages. But this year, the U.S. managed the talks alone. The IMF stepped in only at a late stage and did not play a significant role.

And the dissatisfaction with the IMF runs far deeper than that. Those familiar with the IMF’s role in negotiations with other countries say that its management is no longer exerting the kind of bold leadership that it once did on economic reforms by Third World countries.

Commercial banks complain that the IMF has “run away” by refusing to offer debtors the same sort of debt-reduction packages on its own loans that it is urging private banks to provide. The IMF now receives more in loan repayments from debtors than it makes in new loans.

Moreover, Camdessus’ penchant for pursuing his own agenda on major issues has alienated U.S. officials, who, as representatives of the IMF’s largest and most powerful donor, have been used to having a far larger say in IMF policy-making.

At the 1987 seven-nation economic summit in Toronto, Camdessus enraged James A. Baker III, then the U.S. treasury secretary, by openly backing a new joint Japanese-French Third World debt plan that was at odds with Baker’s desire to stick with the status quo.

Turf Battle

That same year, he made an end run around Baker and other finance ministers to seek approval directly from heads of government for a new IMF lending pool designed especially for sub-Saharan African countries, many of which are tied to France politically.

And last year, when the United States asked the World Bank to finance a critical loan to Argentina, Camdessus launched a bitter turf fight with that sister institution. Only after months of negotiations and a formal “concordat” between the two did that battle end.

This year, he is flouting the Bush Administration again by campaigning hard for a bigger--and far earlier--boost in lending resources than Washington has said it would back.

He also is mounting a surprise--some call it quixotic--attempt to persuade the industrialized countries to go along with issuing a new round of “special drawing rights,” a form of paper reserves that critics say would unnecessarily boost global liquidity with little real gain.

“Every time they try to make the SDR come back in one form or another and it is vetoed, it comes across as a blow to the prestige of the fund,” said Rimmer de Vries, chief international economist for Morgan Guaranty Trust Co.

Perhaps as a result, the IMF has been virtually shut out of what is supposed to be one of its most important roles--trying to get the United States and other big industrialized countries to keep their own economic houses in order.

Although Camdessus is still invited to meetings of the Group of Seven--finance ministers and central bankers of the United States, West Germany, Japan, Britain, France, Italy and Canada--it is mostly for cameo appearances. In effect, the G-7, as the group is known informally, has taken over the watchdog role for itself.

Criticisms Dismissed

“The fund does not have any significant or major role in the G-7 process,” said Alan J. Stoga, international economics specialist at Kissinger Associates, a New York consulting firm. “There are serious questions as to what is the fund’s role. Why is it there?”

A senior U.S. policy-maker argued that until the IMF has the political clout to prod countries such as West Germany and Japan to reduce their trade surpluses as America moves to trim its trade deficit, “it really isn’t in the ballgame.”

Camdessus himself dismisses such criticisms as unwarranted--and just part of the job. “None of the gentlemen sitting around the table (of the IMF’s executive board) is 100% happy with what we do,” he told reporters last week. “But we live by consensus--and that means you have to try to satisfy the largest number of people.”

IMF officials point out privately that much of what critics have complained about in recent months has either evaporated or turned out in Camdessus’ favor.

For example, the French-Japanese Third World debt plan, which the United States opposed so vigorously in 1987, has since been embraced by the Bush Administration in the global debt plan proposed last March by Treasury Secretary Nicholas F. Brady.

Fund officials note that although the arrears problem is a serious one, there are fewer countries in arrears today than there were two years ago. And some argue that Camdessus was right in refusing to go along with an IMF program for Argentina in 1988.

The managing director also is unimpressed with suggestions that the IMF should seek to carve out a new role. “What the fund has to do is to continue implementing” its current programs, he said.

Tired of the Battle

Pedro-Pablo Kuczynski, co-chairman of the investment bank First Boston International, noted that although Camdessus may not seem as bold as de Larosiere, he is operating in far different circumstances.

“At the start of the debt crisis, when things were more hopeful, it was much easier for the fund to take a more aggressive role,” Kuczynski said. Today, he said, both creditors and borrowers are tired of the battle.

Besides, he added, banks are better able now to cope with potential defaults by Third World countries, and that has lifted the threat of a financial crisis that gave the IMF more leverage in the early 1980s.

George Washington University’s Nau noted that de Larosiere’s success stemmed partly from the fact that he had strong backing from Paul A. Volcker, then chairman of the Federal Reserve Board. The current chairman, Alan Greenspan, is less eager to plunge into crisis management.

This week’s meetings of finance ministers will be critical for the fund. Besides the question of how much and how quickly to increase its lending resources, the IMF must face another pressing problem: Many of its borrowers cannot pay back their loans.

The latest figures show that the amount of loans that are in arrears this year has mushroomed to nearly $4 billion or about 10% of the money that the organization has loaned to developing countries. Efforts to persuade countries to resume payments have been mixed.

This week’s battle over the size of the IMF’s lending pool will be crucial to determine the future course of the controversial organization.

Morgan Guaranty’s de Vries cautions against underestimating the IMF’s staying power. “There’s no question that the IMF is going into a declining phase,” he said, “but I wouldn’t write it off.”