IMF party may get rough

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The Independent Online
THE International Monetary Fund has had a rough ride in the run-up to its annual meeting tomorrow with the World Bank. First, it was denounced by a senior banking official for transforming itself into a charity clinic for destitute borrowers. Later, its annual forecast of world growth, contained in the widely cited World Economic Outlook, was roundly criticised by economists as 'fantasy land'.

David Mulford, a top US Treasury official, delivered a further on-the-record blow by disparaging the IMF's forecasting record over the last 24 months and by refusing to accept its advice to increase taxes. 'Our position on the US budget deficit is well known. It is not up to the IMF to tell us how to reduce it,' he said.

Finally, on the eve of its main event, IMF officials worried privately whether the star performers would skip the party. European ministers from the Group of Seven nations had made contingency plans for a flying visit to Washington on Saturday and to be gone on Sunday - to be in place on Monday when markets open after the critical French referendum on Maastricht. If so, it would be the first time in the history of these annual meetings that so many main players were missing.

Critics who claim that the IMF has lost its original purpose - to steer and support nations through short- term economic problems - and should be subsumed into the World Bank cite its recent longer-term lending focus as a reason. They also point to the growing arrears of borrowing nations. But Horst Schulmann, the banking official cited earlier, does not want to get rid of an independent IMF. He just wants it to get back to the short-term basics. 'An unfortunate by-product of the debt crisis of the 1980s has been the further erosion of the IMF as a monetary institution. Today, it has more long-term clients than ever. Has the world become a safe place as a result? I doubt it. Certainly it is no safer for the private creditors of sovereign debtors,' he said. He wants a taut, pay-as-you-go IMF, which is clearly distinct from the long-term development focus of the World Bank. As chief economic adviser to former German Chancellor Helmut Schmidt, Mr Schulmann was one of the key architects of the European Monetary System. In his new position as president of the state central bank of Hesse, and as a member of the Bundesbank's policy-making council, he will pursue the same 'get your house in order' philosophy. For example, he is against the debt service reduction for Russia that has been promoted by the Paris Club.

This is not the view of the IMF or of its managing director, Michel Camdessus, who supported and has lobbied for a Paris Club debt relief programme for Russia. Recently, Mr Camdessus has been aggressive on a number of fronts, which is one reason why the IMF has drawn so much flak. For example, the IMF and Mr Camdessus have advocated urgent tax increases in the US and Germany to correct big budget deficits. Particularly as regards the US, in a critical election year, this is a very courageous stance. Mr Mulford may not want to hear it, but it does not hurt to have a prestigious outside agency pressuring a government to do the right thing.

In other areas, however, the IMF's role has been uneven. Its recent growth forecasts have indeed been overly optimistic, forcing frequent corrections and subsequent loss of credibility. While the IMF has reduced its world growth projections this year to 1.1 per cent, it sees 3.1 per cent for 1993 - a figure many economists find difficult to believe.

Mr Camdessus is quite aware of the proposals to recast the traditional roles of the Bretton Woods institutions and clearly does not want the IMF to lose out. In the face of a fairly silent World Bank, he has taken the initiative to carve out a new role for his agency in charting Russian reform. On this, he needs to be careful. It is quite appropriate for the IMF to chastise the US and Germany on their near-term fiscal and monetary policies. But the IMF moves off the mark when it delves into longer-term lending and issues such as privatisation where it has little expertise.

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