Stonewalling the IMF

A reluctant Congress is undermining President Clinton’s effort to take the lead in fashioning a response to what he has called the world’s worst financial crisis in 50 years. The administration promised nearly a year ago to help replenish the cash reserves of the International Monetary Fund with an $18-billion infusion. But resistance in the GOP-dominated House dogged the president and his financial team as they tried over the weekend to sell other nations on the administration’s global economic plan to establish a new financing mechanism within the IMF.

To be sure, other factors also mitigated enthusiasm among finance officials of the world’s seven largest industrial nations and an interim IMF committee meeting in Washington this week. All agree that the global crisis is worsening, but there is little consensus on a remedy. Each nation had decidedly different ideas. For example, Japan, engulfed in a withering banking crisis, says it favors setting up a special fund to help Southeast Asian countries. But this crisis is global, thus coordinated policies to deal with banking, capital flows and disclosures would provide the best chance of restoring confidence.

The so-called G-7 agreed to explore Clinton’s controversial proposal for the IMF to provide pre-approved lines of credit to countries with sound policies that suddenly find themselves in trouble because of panicky investors. But this plan would be a sharp change from the IMF’s traditional policy of requiring borrowers to adopt austere economic policies.

The IMF is not formally the world’s lender of last resort; no such entity exists. But when the Asian economies collapsed in the summer of 1997 the IMF was the first agency to offer bailout packages. Other rescue efforts since then have been slow in coming and painful in organizing, with wildfires popping up across the globe. The latest crisis point is Brazil.

The IMF badly needs the $90 billion its members agreed to contribute to cash reserves. With the House holding back the U.S. share, President Clinton posed the problem: “We can lead back from this financial precipice, but we need the resources to do it.”