A Strained IMF Dispenses Fiscal Medicine

The International Monetary Fund’s decision to assist Russia with billions of additional dollars is expected to strain the lender’s resources and increase pressure on Congress to approve President Clinton’s request for $18 billion to replenish IMF coffers.

New IMF figures show that once the loan to Russia is disbursed, the 182-country organization would have only about $13 billion available to rescue other financially troubled countries--less than it recently lent to South Korea and by far the tightest squeeze in its half-century history.

U.S. officials indicated that the White House will renew its push for prompt congressional approval of a 9-month-old proposal to provide an $18-billion line of credit to the IMF to help reinvigorate its depleted lending pool.

But congressional strategists are still uncertain whether lawmakers will approve the full $18 billion that the White House requested or limit the measure to $3.5 billion--the part of the request targeted for rescuing Asian countries.

A House Appropriations subcommittee is to take up the legislation Wednesday. The Senate approved the full $18 billion in March, and a House-Senate conference committee would resolve any differences.

Clinton administration officials clearly were hoping the urgency of the situation in Russia--which came perilously close to a full-scale financial debacle--will intensify pressure on Congress to approve the full amount.

Although some lawmakers have denounced the $18-billion proposal as too costly, administration officials point out that the money is only a line of credit and does not show up as government spending. The United States receives interest on any part that the IMF lends out. Defaults are extremely rare.

Moreover, it was largely at the urging of the United States that the usually conservative IMF agreed to lend Russia as much as it did. Fund officials had sought to limit the loan to $5.6 billion, but the administration pushed privately for a far larger amount.

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The normally staid IMF acts as a lender of last resort to help rescue financially troubled countries, making loans to their governments and their monetary agencies to help stave off financial disasters that otherwise could leave the countries bankrupt.

But in exchange for that money, it routinely requires countries to take steps to deal with their financial or economic problems--by paring their budget deficits, for example, or bolstering their banking systems. Russia agreed to strengthen its tax-collection program.

The IMF has taken the lead in coordinating international efforts to rescue countries caught up in the past year’s Asian financial crisis, lending about $40 billion of its own money and assembling companion loans from governments totaling an additional $60 billion.

It also faces the possibility that a downturn in the Asian economies--or new financial crises in other parts of the world--could spark a need for more large-scale lending. South Africa’s economy is deteriorating steadily. And Indonesia has asked for additional loans.

Stanley Fischer, the IMF’s No. 2 official, told reporters Monday that the lender’s resources are being severely taxed. He warned that it would not be able to meet another crisis on the scale of Russia’s or that of the Asian economies. “We cannot continue this way,” he declared.

To minimize the drain from the loan to Russia, the IMF announced that it would tap a special contingency fund known as the General Arrangements to Borrow, or GAB, for $8.4 billion of the total, taking only $2.8 billion from the IMF’s general resources. Use of the GAB, which has $23 billion available, is restricted to emergencies that could have a systemic impact on the global economy; it has not been employed in 20 years. The move requires approval of the major industrial nations, which is expected in a few days.

Once the loan to Russia has been disbursed, the GAB will have a balance of only $14 billion, and IMF officials estimated that the organization’s general lending fund, now about $15 billion, is likely to end up at about $12 billion to $13 billion by the end of this year.

Ironically, the last disbursement from the GAB--in 1978--went to the United States to help the Carter administration stave off a run on the dollar in the face of runaway inflation here. The United States later repaid the IMF.

The IMF replenishment legislation was sent to Capitol Hill last autumn, before the Asian financial crisis hit in full force, but it was held hostage to GOP demands that Clinton accept restrictions on use of U.S. foreign aid to help overseas family-planning groups that provide abortions.

Some Republicans--and a handful of Democrats--also have complained that the IMF is too secretive, does not warn investors early on that a country is in financial difficulty and does not enforce labor and environmental standards.

Some have proposed linking the $18-billion line of credit to IMF agreement to reform its own policies to take account of such concerns. The administration has pledged to press for such reforms but says Washington cannot withhold funds without wreaking havoc in the IMF.

However, congressional strategists say that, in the wake of the Russian crisis, they are not certain yet whether critics will insist on attaching their demands or whether the legislation will include only token recommendations.

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Although some critics complain that the United States is losing part of its sovereignty by working through the IMF, Washington is by far the most influential member of the organization. It has 18% of the voting power--enough to veto major policy changes with which it disagrees.

The United States pledged at the IMF’s last annual meeting that it would contribute the $18-billion line of credit as its share of both the general-fund replenishment and a special new Asian rescue kitty known as the New Arrangements to Borrow, or NAB.

IMF officials said Monday that if the organization has only $13 billion in its general lending coffers by the end of this year and $15 billion in the GAB, as is now expected, that would be the least amount of lending funds in relation to outstanding loans in its history.

The IMF was established near the end of World War II--primarily at the instigation of the United States and its major Western allies--to help provide temporary loans to financially troubled countries and to govern the fixed exchange rate system of those days.