Global Policy Forum

By David E. Sanger

Washington -- A senior official of the International Monetary Fund warned Thursday that he would neither submit to "the blackmail" of Russian leaders who threaten national default if they are not given billions of dollars in new aid, nor allow Congress to "impose conditions" on the fund in return for $18 billion in new contributions from the United States.

The comments came as the IMF is facing the most intense criticism of its 53-year history, accused of mismanaging the spreading global financial crisis and misjudging the political effects of its prescriptions.

But the senior official, who declined to be identified by name, conceded no mistakes on the part of the institution during his 90-minute breakfast with a large group of reporters Thursday morning in the fund's executive dining rooms, three blocks from the White House.

While the official conceded that the world economy is "in a mess," he insisted that the global economy would not "fall into a world recession" in coming months. He also made clear that a huge "contingency fund" now being assembled for Latin America -- chiefly to support Brazil -- would require direct contributions from major economic powers around the globe, including the United States.

So far the Clinton administration has refused to publicly discuss whether it would agree to commit U.S. taxpayer dollars to stabilize one of the United State's largest trading partners.

Any such move would have echoes of the 1995 bailout of Mexico, a move President Clinton made in defiance of Congress, which overwhelmingly opposed the loans. While Mexico fully repaid the full $12 billion loan, administration officials are leery about repeating the experience, especially at a moment when Clinton is conserving every vote he can in Congress to ward off impeachment threats.

The IMF official noted that the government of Brazilian President Fernando Henrique Cardoso, who faces a national election in 10 days, has made no "formal" request for aid.

"We go on assessing the situation to be ready when the need arises," the official said, a considerable understatement of the frantic series of phone calls exchanged among the world's finance ministries in recent weeks about stopping the economic contagion from spreading to Latin America.

In recent days the leadership of the fund -- particularly Michel Camdessus, its French-born managing director -- has been mounting a public-relations counteroffensive against its many critics.

Both Senate Majority Leader Trent Lott and House Speaker Newt Gingrich have referred to Camdessus as a "French socialist" who has squandered the fund's resources, and the House recently rejected an $18 billion payment of the U.S. commitment to the institution.

The IMF has been on the defensive about its $4.8 billion aid payment to Russia in late July. No one can fully account for what happened to the money, which was intended to stabilize the ruble.

It was lost in currency transactions after the Russian government allowed the ruble to be devalued. The IMF aid did, by most accounts, provide some extra time for the country's oligarchs to get their cash out of the country before the devaluation.

At Thursday's session with reporters, the senior IMF official reversed course and was sharply critical of Russia, making clear that the IMF would not go forward with the $17 billion bailout plan it cobbled together in July unless Russia met the conditions of the loan. The new Russian government appears to be going the other way -- announcing plans to print money to dictate to its lenders when and how much they will get paid back.

"For the government to be credible with the international community they must behave in a civilized way with their creditors," the senior official said. "Any kind of imposed solution for debt restructuring would be a mistake."

The official also derided Russia's statements in recent days that it would resort to "controlled inflation."
"Controlled inflation reminds me of what Anglo-Saxon people call being half pregnant," the official said. "The IMF does not like countries to be half pregnant with inflation."
"People don't want to be paid for their arrears in fake money," he concluded.

The senior official stressed that "we are talking with Russia" and "trying to obtain from the authorities clarification of their intentions." But he said that the "IMF does not accept" efforts to "blackmail" the institution into providing more funds by threatening further defaults on international loans, an event that could trigger more global market turmoil. He seemed to be referring to comments made earlier Thursday by Russia's deputy Prime Minister Alexander Shokhin, who said that if the IMF delays additional aid it would "drive Russia into a corner."

The comments on Congress' reluctance to provide $18 billion in new cash for the IMF -- part of a far larger financial pool supported by other countries -- seemed intended to signal that the United States should ask for changes but not dictate them.

"The U.S. must bring its contribution," he said, "and no country is entitled to impose conditions."

If every country tried to do so, he said, "at the end of the day we would have so many conditions -- contradictory -- that the job could not be done." The official held out a small olive branch, saying "I hear many things on the Capitol Hill which are music to my ears and which are already in the cooking here," mostly reforms that would require the IMF to make more data public about internal operations and about the countries it helps.

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