Critics say 'Bretton Woods' institutions have
outstripped post WWII-mandate,
providing bailouts that may undermine
the countries they seek to help
By Tyler Marshall
East Asia's festering economic turmoil is the latest and most troubling in a series of international crises that have stripped these colorless organizations of their anonymity, dragged them into the glare of publicity and raised concerns about their enormous muscle. They can determine the fates of national governments. To financially desperate countries, they extend loans in return for market-opening economic policies that, critics argue, destroy the very fabric of the fragile societies they are trying to help. They orchestrate sweeping change and they tinker with trivia. Last week, as the IMF struggled to bring stability to Russia's chaotic economy with yet one more multibillion-dollar loan package, it was also deep into talks with Bulgarian authorities about the timing of electricity price hikes. Even individual Americans are affected. For in the global economy, where mutual funds know no national boundaries, decisions of the IMF and the World Bank can influence the size and composition of the investments at the heart of many Americans' retirement nest eggs. Inevitably, both institutions have become the stuff of a growing political debate--one that questions their advice, their power, their relevance and their very existence. In a world that has changed beyond recognition since their creation 54 years ago, are these institutions still up to their original task of choreographing the world's financial stability? The IMF's list of critics is impressive and growing. To them, the Fund has become an institutional monster whose unaccountable bureaucrats have long since ignored the body's initial limited mandate to help countries through liquidity and balance- of-payments troubles. That mission was set down in simpler times by delegates from 44 countries who gathered in the New Hampshire town of Bretton Woods in July 1944 to chart a new global order for the post-World War II era.
Instead, the critics charge, the Fund has reinvented itself as a secretive, all-powerful lender of last resort, capable of putting together huge loans to rescue a country, but at the same time demand- ing austere economic policies that deepen the existing crisis and plant the seeds for the next bailout. "Ineffective, unnecessary and obsolete," former Secretary of State George Shultz declared of the IMF in an opinion piece for the Wall Street Journal earlier this year that argued for its abolition. Added Jeffrey Sachs, the Harvard University economist who advised both the Polish and the Russian governments during their transition from communism to free-market economies: "The IMF programs don't instill confidence, they don't stop financial panics. In fact, they often incite them. I personally advise govern- ments, 'Just don't go to the IMF right now.' It has to learn that a financial bureaucracy can't run half the world. It's deeply corrosive." Others find such criticisms little more than cheap shots by those far from the white heat of crisis. The IMF and the World Bank, they say, keep order in global commerce and development; if they didn't exist, they would have to be invented. "The world needs the IMF even more than it did 10 to 20 years ago," stated Robert Solomon, a respected former international economist at the U.S. Federal Reserve Bank. "I'd give it more financing." Still others note that for all the hand wringing about the power it wields in some instances, the IMF remains impotent in others. For example, it has few answers either for controlling the tidal waves of capital movements that undermined Asian economies last year, or for protecting emerging markets from the mayhem left in the wake of such massive transfers. Indeed, some experts argue that it is precisely the IMF's and World Bank's market-opening crusades that have left emerging nations so exposed and defenseless to such dangers. Several of those interviewed for this article predicted that the era of unrestricted capital flows would end, while in an interview, IMF Chief Economist Stanley Fischer suggested that a scheme of agreed- upon minimum standards for national banking and financial institu- tions was likely to help reduce volatile capital flows.
"We're going to have to develop an international monitoring and certification system that will be enormously resented by those who don't make it," he said. "Politically, it's extremely complicated, but I think we're headed down that road." The inability of the IMF or anyone else to push large countries such as Japan and Russia toward economic reforms seen as vital for global stability is generally viewed as inevitable and no one seems to be proffering any solutions. During the last year, the debate over the IMF has cascaded into the political arena, including the U.S. Congress, where a Clinton administration request for $18 billion to replenish the Fund's depleted coffers has generated an unprecedented debate. Conservative Republicans, skeptical of international organizations in general, have criticized IMF-organized bailouts in Asia and, earlier, in Mexico as both financially excessive and morally wrong because they have allowed rich speculators to sidestep major losses while a hapless middle-class suffers the hardship of economic austerity. Worse, they argue, is that cushioning the risk for speculators in one crisis effectively sows the seeds for the next. "The IMF encourages behavior that leads directly to financial and economic collapse," declared House Majority Leader Dick Armey (R-Texas), an opponent of replenishing IMF coffers. Too divided to decide quickly, the House Republican leadership recently postponed a vote on the replenishment until fall.
The World Bank has also come under attack by critics who say it has lost its way. Established at Bretton Woods mainly to help rebuild war-torn Europe, it quickly shifted to fostering Third World develop- ment. In the process, critics say, it has become arrogant and detached. A brewing internal scandal over illegal kickbacks has only added to the bank's image problems. World Bank spokesman Klas Bergman says the bank has reacted to the criticism by engaging more outsiders in decision-making and trans- ferring more staff people into the field from its plush Washington headquarters. But the bank is the target of the same complaint that is leveled at the IMF: The conditions it imposes on loans--usually privatization and market liberalization measures--are often destruc- tive. The group is coordinating a project in which the World Bank, non- government organizations and local community leaders for the first time are jointly evaluating the impact of the bank's loans and their conditions. The initiative, launched by bank President James Wolfen- sohn last year as an example of the institution's new, cooperative spirit, may prove damaging to its longer-term credibility. Although rejected by World Bank officials as premature, initial results from Hungary and Uganda indicated that privatization and market-opening schemes had crushed local economies, triggered large-scale unemployment in both countries and increased malnutrition in Uganda. For the U.S., the controversy has an additional dimension. Created out of the ashes of World War II, when America's economic might was unchallenged, both the bank and the IMF have evolved as extensions of American power. With headquarters in Washington, they promote free trade, open markets, private enterprise and the unimpeded flow of capital--the heart of America's global vision. Any major backlash could erode American power. As the debate over the Bretton Woods institutions grows, voices in Washington have argued that it is time for a congressional review of the IMF's role. "In Asia, they've become the financial peacekeepers, the blue helmets of the financial world, and I'm unsure our political systems endorse them in this role," noted Robert Zoellick, president and CEO-desig- nate of the Center for Strategic and International Studies in Washington.
One vehicle, he suggested, would be a congressional commission, such as that headed by former Defense Secretary Donald Rumsfeld to study the missile threat posed by rogue states such as Iraq and North Korea. "It won't solve the problem, but it would provide important political capital that the IMF has never had," Zoellick said. Those familiar with the mood on Capitol Hill agree. "It's important to realize these guys are a group of international bureaucrats, bankers and economists who have been largely left alone for 50 years, and that's a pretty frightening crowd to turn things over to for any length of time," noted a Senate staffer who deals with international economics issues. "There are good reasons to revisit the authority we've given them."
Copyright (c) 1998 Times Mirror Company
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