Global Policy Forum

By Harry Dunphy

Washington - The International Monetary Fund says it will strengthen the safeguards on its loans in response to allegations that central banks in Russia and Ukraine deceived the IMF to obtain new finance. Acting IMF Managing Director Stanley Fishcer told reporters Tuesday that new auditing requirements for borrowing countries' central banks were intended to make sure IMF loans in the future were properly used.

"The cases that have hit the headlines are cause for grave concern," Fischer said. "It is critical that when the IMF makes loans they are used for the intended purpose. There can be no abuse of IMF trust, which is a public trust." Many members of Congress have criticized the IMF for not immediately uncovering the true state of finances in Russia and Ukraine when it was negotiating loans.

Last year the IMF discovered the Russian central bank had lied about the size of its foreign exchange reserves, some of which had been moved offshore through a subsidiary company. Earlier this year, Treasury Secretary Lawrence Summers reported to a congressional committee on similar activities by the National Bank of Ukraine that led the IMF to make three loan payments it would have held back on had accurate information on reserves been provided.

The IMF's 24-member executive board approved new requirements effective in July that countries seeking loans will have to agree to publish annual financial statements of their central banks that have been reviewed by outside auditors. When the IMF loans money to a country in financial distress, the money usually is deposited in that country's central bank. The IMF has never before required all countries to agree to independent audits of its central bank as a condition for getting loans although it has required occasional spot audits if there were allegations of improper use of the funds, as in the case of Russia and Ukraine.

In a wide ranging news conference, Fischer told reporters that the IMF had a full agenda of reform proposals to address at its annual spring meetings with the World Bank on April 16-17. Many of the groups that disrupted the meetings of the World Trade Organization in Seattle in December are making plans to have thousands of demonstrators on the streets of Washington to express their unhappiness with the IMF and World Bank. These activists maintain that loan policies of the fund and the bank impose harsh conditions on poor countries and favor multinational corporations.

Fischer acknowledged the potential for disruptions in Washington in light of the vandalism that occurred in Seattle, but he said he believed Washington authorities would be properly prepared to make sure the demonstrations remained peaceful. "The local police forces and those responsible for security are taking this very seriously - the possibility of disruptions," he said. But Fischer declined to say what contingency measures might be taken when asked if the time or place of meetings would be changed or how limousines the central bankers and finance ministers routinely use to attend these meetings would reach their destinations if protesters were blocking the streets.

Fischer, a naturalized American, is currently heading the IMF following the resignation in February of France's Michel Camdessus, who stepped down after 13 years. After an intense global power struggle, Germany's Horst Koehler was selected as Camdessus' replacement but duties at the London-based European Bank for Reconstruction and Development will keep him from taking office until after the spring meetings. Fischer said he planned to hold a get-acquainted meeting in Moscow later this week with Russian President-elect Vladimir Putin but no talks on resuming loans would take place until a new Russian government took office in early May.

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