Global Policy Forum

By Conor O'Clery

Much has been made of US Vice-President Dick Cheney's remark that "If you set aside Three Mile Island and Chernobyl, the safety record of nuclear is really pretty good". US Treasury Secretary Paul O'Neill might be tempted to match this with: "If you set aside Turkey and Argentina the Bush administration's record on stopping International Monetary Fund (IMF) bailouts is really pretty good."

When President George W. Bush arrived at the White House in January he brought with him a team of right-leaning economists with precisely this aim in mind. Mr O'Neill had been to the fore in chiding the Clinton administration for supporting country bailouts organised by the IMF, and had heaped scorn on the "too frequent" rescue packages. His top international aide John Taylor even advocated in 1988 the outright abolition of the IMF, set up at the Bretton Woods conference in 1944 to promote currency stability and oversee international financial and monetary order, though he has backed away from that view.

But when it came to the realities of tackling financial instability in the developing world, the Bush team blinked, twice. The United States backed an $8 billion (euro 9.4 billion) IMF loan for Turkey in late April on top of an existing $11 billion package, and a $13 billion IMF loan arrangement for Argentina.

These decisions could not have been taken without the say-so of the US Treasury, as Washington has 18.25 per cent of the vote on the board of the 183-nation IMF, three times more than any other country. "If the US is against something, it won't happen," said a senior IMF official at the organisation's Washington headquarters.

Far from opposing bail-outs the Bush team is now using the IMF to cushion US and international banks from the effects of a local financial meltdown, and to protect US national interests - Turkey is a valued NATO ally which provided air bases for bombing Iraq.

When the IMF managing director Horst Kí¶hler and European countries proposed at a recent G7 ministers' meeting that bailout funds for Turkey should be matched by bilateral loans from the US and other major industrialised countries, Mr O'Neill, the former head of the giant Alcoa aluminium company, insisted the money should all come through the IMF. When it came to Argentina the US Treasury decided that the alternative to IMF intervention was that "US bankers would take a haircut", as an IMF insider put it.

So in the two cases so far since the Bush Administration took office it has been business as usual. There was no stomach in the new US Treasury team for letting investors or countries go broke, as they had advocated in opposition. Moreover the insistence that America should not provide bilateral aid allows the Republican White House to boast that no tax dollars are being put on the line. Critics say this obscures the fact that it forces the IMF into making loans larger that they would otherwise be, and that the US is tacitly endorsing rescue strategies that protect the risky investments of the market's financial players rather than discouraging markets from relying on bailouts.

This month, in a move central to the future direction of IMF decision-making, the US administration nominated a strong supporter of the role of the IMF in resolving international crises to the key job of IMF first deputy managing director, traditionally filled by an American. (Mr Kí¶hler had preferred a treasury official from the Clinton administration to succeed the outgoing deputy managing director, Mr Stanley Fisher, the hugely influential strategist of IMF bailouts in the 1990s, but the IMF boss had to bow to the will of the nation with the most clout in his multinational credit union.)

The imminent arrival of Ms Anne Krueger (67) a conservative Stanford University economist, has been taken in world financial circles as final confirmation that the Bush approach will differ little from the Clinton years. While known as a staunch conservative in trade and development policy, Ms Krueger has not been one of the critics of the IMF's bailouts. She told Congress in 1999, referring to IMF interventions in Indonesia, Russia and Brazil, that in her judgment the situation would have been much worse without the IMF, which had "done well".

But she has also echoed conservative criticism that the institution concentrated too much of its resources on "poverty alleviation, income distribution, and other questions which are not only far away from its traditional competence, but which also detract seriously from its capacity to handle macroeconomic crises, where it has possessed competence".

This goes to the heart of a moral crisis within the IMF, stirred up by the growth of the anti-globalisation movement which accuses the fund of imposing too austere economic policies on developing countries to ensure international investment is recouped, resulting in increased misery for the poor. IMF officials have been engaged for some time now in internal debate on poverty reduction - the promotion of "real income growth" is one of its mandated functions - and the merits of micromanaging whole economies by imposing scores of sometimes harsh conditions (140 in the case of Indonesia).

It remains to be seen how Mr O'Neill's nominee will contribute but she is sceptical about proposals to wipe out Third World debt, and has written critically of poor countries squandering debt relief on weapons, perks and subsidies for the ruling elites. She favours scrapping protectionist policies and imposing radical reforms like privatisation.

Even IMF officials who worry that such conditionality simply means poor countries selling off their assets to foreigners fret about gross misuse of funds. Within the fund there is currently great discomfort about loans to Uganda for example, as "the former darling of the fund is heavily involved in a war which we are financing", according to a senior official.

There is also soul-searching about the destabilising effects of the conditions imposed on Indonesia - and now on Turkey where all political parties were obliged to "sign on" to the recent IMF bailout-reform package - and on how to avoid another Russiantype fiasco when the IMF financed massive capital flight out of the country.

With the IMF annual meeting coming up in September, the fund is girding up for another round of anti-globalisation demonstrations in the streets outside, but inside the airy HQ on Washington's 19th Street the debate on conditionality and poverty alleviation is just as hot.

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