Money saved should be returned to member states, says congressional report
March 1, 2000
US Congressional report to be released early next month recommends drastic curbs in the roles of the World Bank and International Monetary Fund, and says the money saved should be given back to member states. The highly critical draft report, obtained by Reuters on Monday, seeks shake-ups in both institutions, limiting World Bank lending to poor countries that cannot raise money in the private sector and changing the IMF's lending rules.
Some "minor revisions" are likely before publication and panel members are expected to add dissenting views, says the paper, written by a bipartisan commission chaired by Carnegie Mellon University economics professor Allan Meltzer.
"The IMF has given too little attention to improving financial structures in developing countries and too much to expensive rescue operations. Its system of short-term crisis management is too costly, its responses too slow, its advice often incorrect and its efforts to influence policy and practice too intrusive," the document said.
"High cost and low effectiveness characterise many development bank operations also. Evaluation of the World Bank's performance in Africa found a 75 per cent failure rate. Only one of four programmes achieved satisfactory, sustainable results."
The report, whose authors include long-term critics of the IMF, is part of a review initiated in 1998 when Congress approved the US share of higher quotas at the IMF. The report seeks a smaller IMF which could provide short-term loans at "a penalty rat" a higher interest rate than the country would have paid if it tapped capital markets a week before crisis struck.
It would scrap most of the IMF's existing lending windows, including the longer-term credits which offer a seal of international approval about economic policies of IMF members, although continue the funds surveillance operations. "The commission's proposals would make the IMF a standby lender. Lending would decline, so fewer resources would be required. Most of the cash portion of members' quotas should be returned to member states," the report said.
A more controversial proposal says the World Bank should stop lending to countries with access to credit markets or with per capita income of more than US$4,000 (S$6,835) a year. Loans to Asia and Latin America should be handled by regional development banks.
The report proposed merging the bank's International Finance Corporation private sector wing into the rest of the bank, which it would re-name the World Development Agency. The bank's insurance agency, MIGA, should be scrapped.
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