IMF Works on Its Image, Starting From Within
WASHINGTON
As world financial leaders gather this week for the annual meeting of the International Monetary Fund and the World Bank in Prague, the IMF once again will be vilified on the streets as a symbol of evil in an unfair global economy.
But in a noteworthy shift, the much-maligned global lender now confronts a critic whose demands for change cannot be ignored--its own boss.
“I believe that the calls for a reform of the IMF are justified,” said Horst Kohler, a German financial expert who in May took the top job at the institution that tries to guard the world’s economic stability. Speaking to reporters, he then conceded a point that some insiders found shocking to hear publicly: “The fund has made mistakes.”
The IMF is often derided as a secretive bureaucracy, averse even to tiny change as it accumulates ever more power over the poor and emerging nations to which it lends money. It has been bombarded with criticism for lax controls on loans to Russia and Ukraine, as well as for austere policies it pushed on borrowers during the financial crises of 1997-98.
Little noticed, however, is that the Washington-based lender has begun to alter the way it does business. With a Web site that now gets 5 million visits a month (https://www.imf.org), the IMF is making more information public than ever before. It is scrutinizing fresh data to guard against panics it once failed to foresee. And in the wake of criticism, it is working on a plan for an independent board to oversee its activities.
More broadly, IMF officials are pledging to rein in their powerful institution, which in recent years has drawn fire for its practice of forcing borrowers to alter their education systems, labor laws, plans to privatize factories, even sugar tariffs. The goal is to put much more emphasis on the IMF’s traditional mission of watching over countries’ broad economic policies and the health of their financial markets rather than worry about whether a farm is owned by the government or private investors, or whether labor unions are too powerful.
“The IMF should stick to the core issues that it knows about,” said Nancy Birdsall, a scholar at the Carnegie Endowment for World Peace.
The “new” IMF will make its debut in the coming days in Prague, where the world’s financial elite have trekked for the annual meeting of the IMF and the World Bank, a series of sessions running through Thursday.
Finance ministers from wealthy nations and fund officials plan to report progress in their bid to ease the debt load of the world’s poorest countries, cutting red tape so more may qualify for desperately needed relief. The goal, announced in 1999, is for 20 have-not countries to get the aid by the end of this year; only 10 have qualified so far.
In a separate bid to help the poor, the World Bank will highlight its initiative to combat AIDS and infectious diseases in the developing world. Beyond that, U.S. Treasury Secretary Lawrence Summers and his counterparts from the wealthiest nations will focus on immediate concerns about soaring energy prices and the unstable euro.
Yet hovering over official discussions and street protests will be questions about the IMF, created at the end of World War II to help rebuild a world that no longer exists: Is its approach really changing, or have IMF leaders merely switched the wrapping, as if the lender were an old brand of soap that consumers have grown weary of?
The issue centers on Kohler, 57, the graying, careful former head of the European Bank for Reconstruction and Development, which funded projects in the former Soviet Union. He also served as Germany’s negotiator for the Maastricht treaty, which set the terms for Europe’s common currency and other policies.
On his arrival May 1, Kohler immediately established a contrast with his regal predecessor Michel Camdessus when he strode into the IMF’s sprawling lobby and shook hands with a startled security guard. From that moment on, he continued to strike a contrast, in a style that has been surprisingly self-critical.
The IMF, he told reporters in August, “has been overstretched in the past, and needs to refocus,” with the great emphasis on crisis prevention and crisis management.
Kohler’s emphasis on change has surprised some at the fund’s headquarters who have seen the IMF’s insular culture survive more than its share of political and economic firestorms. “If there’s been a learning process, it’s been on the part of the institution--that he is expecting significant change,” said a staffer who warned he could be fired if his name appeared in the newspaper.
Kohler, who is known as a centrist supporter of market forces, has promised to lay out his vision for the IMF while in Prague. It is a vision likely to be far more receptive to outside criticisms than in the past, to move in the direction of focusing the IMF’s role on the big picture rather than tinkering with a nation’s internal industries, and one that accepts the value of communicating more openly with the public. Yet it is not expected to be a radical departure from the IMF’s devotion to free-market forces and its determination that loans should come with at least some conditions on national policies.
And it is sure to spark opposition in many quarters--from passionate foes of global capitalism to unabashed fans of free enterprise who complain about particular IMF programs and procedures.
Environmentalists, for example, are planning to lambaste the IMF in Prague for its continued emphasis on export-led economic growth. Carol Welch, international policy analyst for Friends of the Earth, says such policies have often led to excessive tree-cutting, mining and agricultural practices that “generate pollution and environmental destruction” in developing countries.
“While we welcome certain aspects of Horst Kohler’s reform plan, the IMF must still consider how its policy advice has severely damaged the environment and the lives of the poor,” Welch said.
IMF officials are struggling with technical issues, such as whether to stop making long-term loans altogether, restricting the fund’s role to quick relief for nations in crisis, as proposed earlier this year by an advisory panel to Congress headed by conservative economist Alan Meltzer. Even Kohler’s guideline of refocusing on broad economic policies, such as interest rates and government spending, is not proving simple.
“What’s so wrong about having a sound banking system or a court system that works?” asked William Murray, an IMF spokesman. “This is what [often-criticized] structural reforms [imposed on borrowing nations] are all about.” He added: “How many strings do we want to attach to every dime that we lend? That’s something that’s being worked on.”
IMF critics also have argued that the fund should eliminate its loan programs for poor countries, traditionally the domain of the World Bank. The fund’s efforts to fight poverty, which have expanded dramatically since the 1980s, are often cited as Exhibit A in the argument that it has reached beyond its appropriate mission. At the same time, angry street protesters cry out that the fund should be far more sensitive to its impact on the poor.
“The World Bank and the International Monetary Fund claim to be working to eliminate poverty, but their real purpose is to force developing nations to embrace corporate globalization,” said Njoki Njoroge Njehu, director of the 50 Years is Enough Network, which is urging worldwide protests against the two institutions on Tuesday. “The result is the rampant abuse of workers’ rights and the environment, and the further impoverishment of the very people the World Bank and IMF purport to help.”
Initially, Kohler signaled his intention to move away from the poverty loans, which make up $4.9 billion of the fund’s $67 billion in outstanding credit. But after visiting sub-Saharan Africa, where government officials said they wanted the aid, and then hearing resistance to phasing out the loans from some of his own employees, he has apparently pulled back.
“If the fund returns to its original role--which everybody seems to be talking about--it follows that they get out of the business of long-term lending to the poorer countries,” said John W. Sewell, president of the Overseas Development Council, an international policy think tank in Washington. “It’s a critical issue.”
For the moment, change may be coming in less dramatic steps, such as a new emphasis on clear writing in IMF reports that the public can follow, rather than the traditionally technical jargon that makes sense only to experts. Maintaining that the fund’s openness had improved “remarkably,” Deputy Managing Director Stanley Fischer recently pointed to new reports on country finances that the IMF updates frequently on its Web site.
Said Fischer approvingly: “They come out weekly, and you actually can figure out what’s going on.”
