By Peter Passell
The New York Times
February 12, 1998
Does anybody like the International Monetary Fund? The half-century-old super-governmental agency has long been out of favor with the political right, which sees it as a usurper of sovereignty and the enemy of free markets. The left is no friendlier, condemning it as a collection agency for international bankers.
Strikingly, in the wake of the fund's ineffective performance in stemming the Asian crisis, members of the establishment have joined the hostile chorus. Joseph E. Stiglitz, the World Bank's chief economist, has taken some undiplomatic gibes at the I.M.F.'s one-size-fits-all approach to financial distress. In a recent Wall Street Journal op-ed article George P. Shultz, the former Secretary of State; William E. Simon, the former Secretary of the Treasury, and Walter B. Wriston, the former chairman of Citicorp, called the I.M.F. ''ineffective, unnecessary and obsolete.'' And the Congressional Republican leadership, sensing an opportunity to trap President Clinton on the wrong side of the opinion polls, is piling on.
Hence Congress is unlikely to approve $18 billion in financial commitments to the embattled lender unless internal reform is put at the top of the I.M.F.'s agenda. And some changes, it is widely agreed, are overdue. But the big question remains: What, if anything, can be done to prepare the organization to cope with crises that pop up as unexpectedly as monsters in a Nintendo game?
The I.M.F. was created in 1944 to stabilize the economies of what was then a cozy clique of advanced capitalist countries dependent on America. The fund provided loans to defend the fixed exchange value of national currencies, typically in return for promises to fight inflation at home.
But the club with a big stake in international trade and investment grew beyond the industrial democracies. Adding to the confusion, Europe, America and Japan abandoned the fixed exchange rates that the agency had been formed to defend. And the I.M.F. struggled to carve out a new mission. Since the debt crises of the early 1980's the fund has been using its leverage as a lender of last resort to become ever more intimately involved in the micromanagement of poorly run less-developed economies from Pakistan to Peru. This suited the rich economies because it distanced them from the unpleasant task of imposing austerity on profligate economies in search of aid. And it often suited the leaders of borrowing countries, who could blame faceless I.M.F. bureaucrats for everything from unemployment to increases in the price of bread.
A few academics, notably Jeffrey Sachs of Harvard, complained bitterly about the agency's inflexibility in demanding debt repayments from Latin America and Eastern Europe. And the remnants of the voodoo-economics crowd, now led by Steve Forbes, recently asserted that the I.M.F.'s enthusiasm for fiscal austerity and tolerance for currency devaluation was a recipe for disaster. But no one with the power to force reforms has seriously challenged the substance of I.M.F. policy or the fund's secretive, authoritarian style in overseeing more than half the world's economies.
That is about to change. In the wake of the I.M.F.'s failure to predict the crisis in Asia or resolve it promptly, the movers and shakers of international finance have distanced themselves from the fund. For example, a former Under Secretary of State, Richard N. Cooper, a man inclined to diplomatic understatement, now notes that the I.M.F. ''has the disadvantages of any large organization: inertia, preoccupation with precedent, and encrusted with dated rules of thumb and modes of operation.''
First among the demands of the I.M.F.'s newly empowered critics is an end to the secrecy that shrouds everything from routine country status reviews to emergency bailout plans. ''If the Federal Reserve can publish the minutes of its deliberations, so can the I.M.F.,'' argued Peter Kenen, an economist at Princeton University. Not far behind is a push to streamline the fund's decision-making, allowing managers to short-circuit the elaborate consultative procedures now in place so they can react to financial panic in days rather than weeks. ''The organization just has to be able to move faster,'' Mr. Cooper said. Seemingly everybody, moreover, wants the I.M.F. to exact a pound of flesh from private bank lenders, who have generally gotten most of their money back after the I.M.F. intervenes. ''The $57 billion committed in Korea didn't help anybody but the banks,'' Mr. Sachs groused.
But only the most dogmatic free market ideologues think the increasingly integrated global economy can get by without a super-national organization to serve as financial watchdog, scold, mediator and lender of last resort. And hardly anybody who has been second-guessing the I.M.F. in recent months argues that the mom-and-apple-pie virtues of flexibility and accountability will provide the insight to make the world safe for global capitalism.
In the end, Mr. Kenen suggests, institutional reform can go only so far. ''Good judgment, transparency and substantial resources are necessary,'' he argues, but they may not be sufficient.
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