IMF Won’t Remain a U.S. Plaything

Despite the colorful protests against the International Monetary Fund in Washington this week, most nations agree that there is a definite role for the IMF to play in the global economy. The IMF’s new managing director, Horst Koehler, has a tough job in reforming the institution while giving it a more benign public image.

Some of his key concerns for reforms, such as his demand that the IMF not serve at the whim of governments pursuing their own national interests, could potentially put him at odds with the United States. However, before Koehler gets into more details, he will make sure that he has the backing of a broad majority of the IMF’s members.

Europeans especially have several specific concerns about the current U.S. position on the IMF. They feel that U.S. policy sometimes displays a troublesome double standard when it comes to the IMF’s actual lending decisions, specifically with regard to serving U.S. interests. They also worry that the Clinton administration may be too willing to accommodate those in the U.S. Congress who want to abolish or at least severely curtail IMF operations. Lastly, Europeans are nervous that the United States might try to force its own reform ideas on the institution without serious discussion with its partners.

At the center of the debate is an important speech by Treasury Secretary Larry Summers in London last December in which he outlined the administration’s view of how the IMF should operate. On the surface, Summers’ suggestion to confine IMF lending to “emergency” situations is reasonable. The IMF should not offer soft or long-term loans, but limit itself to liquidity bridging and operations executed at market rates. This recognizes that during international financial emergencies, the IMF must “be in a position to provide very large-scale financing to respond to that threat.” As the Asian crisis proved, such threats exist.

But U.S. policy has been often directly at odds with these rules. In fact, just nine days after the Treasury secretary’s speech, the IMF approved a $4-billion loan to Turkey. Contrary to Summers’ own standards, Turkey had no balance of payments or exchange rate crisis and certainly did not pose a systemic threat to the world financial system. Still, it was the United States, for its own geopolitical purposes, that pushed for this loan. The same double standard was on display when funding for Russia and Ukraine was under discussion, as well as in the Mexican bailout of 1994-95.

Little wonder then that it sometimes appears to those outside the United States that Washington uses this supposedly cooperative institution as a piggy bank when it can’t get money from Congress. One must therefore be nervous about the U.S. administration’s ability to secure the U.S. share of funding for future IMF emergency operations and debt relief. Even in an election year, the administration must be willing to stand up to congressional critics of the IMF.

These congressional critics apparently are determined to weaken the IMF. Their case gathered steam with the release last month of a congressional commission report, which recommends that the IMF effectively be disabled by radically shrinking it. Nowhere else in the world is there such opposition to the very existence and mission of the fund. These IMF opponents seem to believe that U.S. opposition alone is enough to change this multilateral institution. But the United States is only one of 182 members, and it controls only 17.3% of the voting shares. By comparison, the Europeans together control more than 30% and supply a considerably larger portion of the IMF’s capital. The IMF’s fate thus has to be decided in a cooperative mind-set by many other parliaments besides the U.S. Congress.

It is a good sign for all parties involved that in Koehler, the IMF will now have a leader who has a strong reputation as an honest broker and one who can manage change well. The European policy views might be supported by many nations around the world, and they should insist on having a greater say in the fund’s operations. Consequently, it is appropriate to request a symbolic change: moving the IMF headquarters from Washington.