Panel Recommends IMF Reform

The 182-nation International Monetary Fund, which was widely criticized for its handling of the 1997-98 global currency crisis, needs to be drastically reformed, a blue-ribbon advisory commission is telling Congress.

The International Financial Institution Advisory Commission issued a 124-page report Wednesday, recommending a radical overhaul of the IMF and its sister lending agency, the World Bank.

The commission said the IMF should limit future activities to providing short-term emergency loans to tide countries over during times of financial crisis. It said the World Bank should scrap most of its current loan activities in favor of supplying grants to the world's poorest nations.

The recommendations have sparked a lively debate in Congress with many Republicans strongly endorsing them while many Democrats have attacked the proposals as too radical.

Sen. Phil Gramm, chairman of the Senate Banking Committee, told the panel members during a hearing today that he hopes to use legislation providing more debt relief for the world's poorest countries as a vehicle to implement many of the panel's reform recommendations for the IMF and World Bank.

"My great frustration with the World Bank and the IMF ... is that I don't believe they work very well," said Gramm, R-Texas.

Sen. Connie Mack, R-Fla., said he was disappointed that Democrats in Congress had attacked the report so strongly. He said he still hoped that a bipartisan consensus would form in coming months in support of the panel's recommendations.

The commission, composed of six members appointed by Republican congressional leaders and five by Democratic leaders, was created as part of 1998 legislation that boosted U.S. support for the IMF by $18 billion to replenish resources strained by the Asian currency crisis.

The panel, which split 8-3 on its recommendations, concluded that both the IMF and the World Bank are wasting billions of dollars in loans to countries that have access to lending by private commercial banks.

It recommended that the IMF restrict its future loans to providing short-term emergency funding to countries facing financial crises and get out of the business of supplying long-term development loans.

The panel said the World Bank should eventually halt 75 percent of the loans it is now making to countries such as China that can raise capital from commercial banks. Instead, it should be renamed the World Development Agency and refocus its efforts to supplying grants instead of loans to the world's poorest countries.

House Speaker Dennis Hastert, R-Ill., and Majority Leader Dick Armey, R-Texas, both praised the group for recommending radical changes in the two agencies, which have long been criticized by conservatives for wasting taxpayer dollars.

House Minority Leader Dick Gephardt, D-Mo., however, called the recommendations "an extreme, neo-isolationist attitude toward key institutions ... Instead of proposing thoughtful reform, the report takes a slash-and-burn approach."

Senate Minority Leader Tom Daschle, D-S.D., accused the group of adopting a "reckless" approach to the two institutions that would "likely increase, not decrease, world poverty."

The sharp division in views extended to the panel itself. All six commission members appointed by Republicans supported the final report along with two Democratic appointees, Jeffrey Sachs, a Harvard University economist, and Richard Huber, the former chairman of insurance giant Aetna Inc.

Voting against the report were the other three Democratic appointees: C. Fred Bergsten, head of the Institute for International Economics in Washington; former Rep. Esteban Torres, D-Calif.; and Jerome Levinson, a former Agency for International Development official.

Bergsten, speaking at an acrimonious news conference on Wednesday where both sides traded charges, said he and others dissented because the majority views, if adopted, would "totally gut the role of the IMF as a defender of international financial stability."