Global Policy Forum

The Bush administration is telling Congress that an overhaul of the International Monetary Fund and the World Bank will be top priorities in its effort to prevent a recurrence of the 1997-98 global financial crisis. While that pledge will play well with longtime critics of the two institutions, a broad coalition of liberals and conservatives in Congress is pushing the administration to seek change in another area, debt relief for poor countries.

Treasury Secretary Paul O'Neill faced a barrage of questions Tuesday in his first appearance before the House Financial Services Committee on the administration's refusal to support an effort to get the IMF and World Bank to wipe out all debt owed to them by the poorest nations.

``We have created a horrendous situation. Millions of people are dying in these countries because of money going to debt relief that could be used for other purposes,'' Rep. Spencer Bachus, R-Ala., told O'Neill. ``The IMF and the World Bank should cancel and not just reduce the debt they have created,'' Rep. Bernard Sanders, I-Vt., said. ``It is keeping poor countries hopelessly in debt.''

O'Neill, expected to face more questioning on debt relief in an appearance Wednesday before a Senate Appropriations panel, said total debt forgiveness would mean wiping out $43 billion in loans to 35 of the poorest countries now being carried on the books of the IMF and the World Bank. He said such a move would ultimately require the United States, the biggest donor to both institutions, and other countries to provide greater support so the institutions could continue with current loan programs.

O'Neill said erasing all debt, as opposed to the current program of forgiving portions of the debt, would be a blow to efforts to promote foreign investment in developing countries by multinational companies as a way of creating jobs. O'Neill said while both the IMF and World Bank have begun making changes to avoid a repeat of the 1997-98 currency crisis, which pushed 40 percent of the globe into recession, both institutions need to do much more. ``I believe that they can do a much better job than they have in the past,'' O'Neill told the House panel on Tuesday. He called reforming both institutions a ``key priority'' for the administration.

In direct criticism of the previous administration's support of large IMF loans to Russia, O'Neill said, ``Sending the money we sent to Russia was beyond belief. It was sent by the previous administration, and I am not in favor of that kind of thing.'' O'Neill said the IMF needs to place much greater emphasis on establishing early-warning systems to sound alarms before countries are engulfed by full-blown financial crises. ``Big surprises lead to big changes in price and can trigger crises,'' he said.

O'Neill said the IMF also needs to ensure that it extends emergency loans only to countries that are taking the proper policy actions. The administration argued successfully for greater restrictions to be placed on a recent IMF loan to Turkey, and O'Neill said that approach would be followed by the administration in responding to future crises.

For the World Bank and other regional development banks, O'Neill said, greater emphasis needs to be placed on loans that improve productivity in poor nations. He said this was the only way they could emerge from poverty. Rep. John LaFalce, D-N.Y., told O'Neill he believed the World Bank needs to emphasize both efforts to boost economic growth and combat poverty. ``It is simply unacceptable to suggest that the World Bank should ignore conditions of desperate poverty while exclusively pursuing growth policies, the benefits of which may trickle down to the poor, but only after many years,'' LaFalce said.

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