IMF tries to balance assets, politics Rich members, like U.S., must carry fair share

August 16, 1998|By Murray Seeger

With the financial crises festering in Eastern Europe and East and Southeast Asia, the moneyed cavalry of the International Monetary Fund finds its saddlebags are emptying fast. The recent mission to save Russia bought some time, but it will be a long time before the new republic escapes the ruins of the old Soviet Union.

The newest rescue of Moscow - $17.1 billion over two years from the IMF, World Bank and Japan - was timely given the atmosphere of international financial tension. But, next door, the next-largest former Soviet republic, Ukraine - a potential economic powerhouse - is desperately in need of help.

Asia's economic anchor, Japan, is struggling with economic problems. Japan's biggest regional trade partners, South Korea, Thailand and Indonesia, are struggling through IMF adjustment programs that produce deflation and social hardships.

Other, seemingly healthy countries around the world are watching to see if the contagion of bad financial and economic policy-making will spread.

The IMF stands in this maelstrom, attempting to balance its policies with its financial resources and political realities. The fund is the only agency able to deal with multiple national financial crises; in fact, it is required to act under the treaty subscribed to by its 182 members.

But the IMF can deal with multiple fire alarms only when its international political support is solid and its wealthier members provide the money necessary to lend to weaker members.

For months, the Republican leadership of Congress has reneged on approving the U.S. portion of the IMF financial reserves. Instead, the conservatives in charge are using the same logic that has kept the United States from paying its bills to the United Nations.

Certainly, there is room for argument on how best to help bankrupt countries restore themselves to solvency. The academic journals and op-ed pages are filled with contradictory arguments by economists and financial experts on what should be done.

The IMF was organized after World War II by the victorious nations to regulate the world's financial system. Since the end of the gold standard for currency in 1972, the IMF's main purpose has been to stabilize international currencies. Functioning as the lender of last resort, the IMF helps governments and central banks to repay international loans.

While the IMF gets much attention when it tries to mend a broken system as in Indonesia, the agency gains little attention for its routine work of analyzing its members' economics. The fund's critics, who've accused it of reacting too slowly in response to several crises, do not realize how its advice goes unheeded by political leaders when their economies appear to be healthy.

The IMF warned Presidents Ronald Reagan and George Bush against piling up immense budget deficits and astounding federal debt, but the White House ignored the messages, as did Congress and the news media. Why should the autocrats of Indonesia and Russia pay attention to early IMF warnings when the IMF's most prominent members ignore them?

Congress looks at the IMF only every five years. Many of the voices heard in the current U.S. debate are not discussing economics. They are thrashing about myths on how the IMF works and what its duties and limitations are.

Faced with the decision of refinancing the IMF, congress members try to impose conditions as if they alone could dictate its policies. The legislative branch mistakenly sees support for jTC the IMF as disguised "foreign aid" poured into poor countries with little political or economic return.

In fact, the IMF funds are borrowed from U.S. reserves. There is no money taken from the federal budget in these transactions; instead, the IMF pays interest for the privilege. The IMF lends money to its needy members and charges enough interest to make a profit large enough to finance its operations. Thus, there are no dues paid to the IMF.

While some see the IMF pumping out money to risky borrowers, the recipients see the agency as a tough operator. Typically, the IMF parcels out its loans as the recipients put in place reforms they accepted from the fund. Failure to perform can terminate the payments, repayments can be extended but no loans are forgiven.

Congress exaggerates the authority that the United States has within the IMF. Organized as a cooperative, the IMF is owned by its members. The United States is the largest member with 18 percent of the shares, but this is down substantially from its original position of about 25 percent. The United States cannot, by itself, make the IMF do anything. Decisions within the 22-member executive board are generally achieved by consensus engineered by Managing Director Michel Camdessus, a career French civil servant who took office in 1987.

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