G7 ministers mark IMF for shake-up
Mexico, and the fall-out from the sudden devaluation of its currency in December, dominated the regular winter meeting of the G7 finance ministers and central bank governors in Toronto.
Angered that they had not been sufficiently consulted over the IMF's $17.8bn contribution to the deal and concerned that it been handed to Mexico without the normal conditions, six states, including Britain, took the highly unusual step of abstaining in the IMF vote on it last Tuesday.
The talks represented an awkward debut on the international circuit for the new US Treasury Secretary, Robert Rubin, who was forced to defuse a row that had erupted last week between Washington and several European capitals over the handling of a $50bn rescue package for Mexico.
While acknowledging that his colleagues had cause for complaint, Mr Rubin said the US had little choice but to move quickly to prevent further loss of market confidence. "There simply wasn't the time to do the consultations that we, as much as anyone else, would have like to do," he said, adding: "To the extent that there was ill-will, I think it is now eliminated".
Paul Martin, the Canadian Finance Minister and chairman of the meeting, stressed afterwards that there had been "unanimous and unequivocal" support among ministers for the rescue package.
The road to agreement on institutional reform looks still more fraught, however. Although modernisation of the 50-year-old IMF and its sister body, the World Bank, has for some time been down for discussion at this year's G7 summit, to be held in Halifax, Nova Scotia, it is now certain to take centre stage in the light of the Mexican debacle.
Britain is likely to work between now and the June summit to forestall efforts to force through any kind of radical reform agenda. A senior UK Treasury official commented drily: "I hope that Halifax doesn't produce a diktat or a fait accompli or anythinglike that."
Especially contentious would be any proposal for an additional supply of funding for the IMF, something the fund's managing director, Michel Camdessus, hinted at publicly last week. Ironically, in practice the US administration may find it more difficultthan anyone to produce new funding, given the new Republican majority on Capitol Hill and its protectionist sentiment.
Although he gave no specifics, Mr Rubin made clear his desire to see an extensive overhaul of the IMF to equip it to respond more aptly to a new environment of vast and rapidly moving capital flows. "We live in a world that has changed enormously even inthe last five years", he said. "The mission and capability of the IMF need to be commensurate with the world we live in."
A similar stance was adopted by the French Finance Minister, Edmond Alphondery arguing that the IMF should be able to mobilise short-term funds more easily. "I would like the IMF to have a kind of facility to make it respond more quickly to situations like Mexico," he said, apparently picking up on an IMF proposal for a new "rapid-response" unit.
But the Chancellor, Kenneth Clarke, said: "There is no case for a new fund" within the IMF. Instead, he suggested, the IMF should consider how it could pay closer attention to developments in economies like Mexico.
The ministers also warned Russia to maintain its market reforms. Fears were expressed by several delegations that instability in Moscow and the ripple effects from the war in Chechnya could distract authorities from their economic reform efforts and directly undermine the economy. "We have to send a clear sign to Russia to intensify its reform efforts", the German Finance Minister, Theo Waigel commented.
Implying a common protest over the Chechnya war, Mr Waigel added the G7 countries had all agreed before Toronto not to invite Russia to attend. Until this weekend, Russian attendance at G7 ministerial meetings had become almost routine.
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