The Meltzer Report has renewed fears that the debate on International Financial Institution (IFI) reform will be heavily skewed towards right-wing interests. Lawrence Summers, US Treasury Secretary, at a March meeting of the Council of Foreign Relations, insisted that there is a role for multilateral development banks (MDBs), to lend to countries which have access to private finance. However he may adopt a harsher line to satisfy Congress.
His defence of the World Bank focussed on US interests, particularly the benefits of global prosperity for US trade. He also called for:
- more selectivity in choosing which countries receive development finance, focussing on those that are committed to open-market reforms;
- a shift away from providing finance to support a macroeconomic position to providing support based on human needs, identified through a poverty reduction strategy;
- fewer, more realistic and better monitored conditions to reduce the burden of engagement with the IFIs;
- a strong presumption in favour of the release of loan documents and greater transparency of operations at the national level;
- additional concessional resources;
- MDB financing in countries with access to private finance should not crowd out private investment and should focus on the social sectors, financial and capital market infrastructure, and legal and institutional infrastructure, as well as leveraging private finance through guarantees and cofinancing;
- a review of pricing policies for loans to countries borrowing from non-concessional sources with access to private finance;
- a focus on the provision of global public goods where coordinated international efforts are required; and
- for the Bank to assist with donor coordination but to limit itself to areas of comparative advantage.
Bundesbank Vice President, Juergen Stark, welcomed the call for a more streamlined IMF focusing on balance of payments and short term lending. The IMF should get out of long-term structural lending, but the role of the private sector in crisis response has to be addressed. The World Bank should focus on financing individual projects and sectoral loans.
New IMF head, Horst Köhler commented that whilst the IMF should focus more on crisis resolution “it remains important to combine financing with adjustment and to stay engaged in all member countries.”
Summers’ speech is available at www.ustreas.gov/press/releases/ps477.htm
In a response to Lawrence Summers’ proposals to reform the IMF (see Bretton Woods Update 15) the G7 governments have agreed to a comprehensive review of financing procedures used by the IMF and to examine the roles of the World Bank and regional development banks. The IMF review will look at the pricing of its loans, long-term funding, and the repeated use of financing by countries.