A US Congress commission, which reported in March, called for major cut backs in World Bank and IMF activities. The commission, led by Allan Meltzer, said the IMF should provide finance only in the event of financial crises and should stop longterm lending to the poorest countries. Whilst the World Bank should phase out its lending to middle income countries and facilitate an increased flow of private sector resources.
The congressional committee’s report also calls for:
- the IMF‘s Poverty Reduction and Growth Facility to be closed;
- write off of all IMF and Bank debts owed by the Heavily Indebted Poor Countries;
- countries to pre-qualify for IMF lending;
- the Bank to stop lending to countries with access to private finance markets and per capita incomes of $4000 or more, and to limit official assistance to countries with per capita incomes of more than $2500;
- the Bank to provide grants for infrastructure and social sector projects to poorest countries;
- the Bank to leave lending to Asian and Latin American countries to the regional development banks;
- MIGA to be closed and the IFC merged into the rest of the Bank which should be called the World Development Agency.
NGOs have had varied reactions, with some welcoming several of the recommendations but criticising the report for its incoherence and lack of analytical rigour. Particularly welcome are the recommendations to cease IMF structural adjustment lending and for full debt cancellation to the Heavily Indebted Poor Countries.
Duncan Green, CAFOD, described the report as “a blatant attempt to attach issues of US self-interest to the workings of the Bretton Woods Institutions, thinly disguised with some rhetoric about making markets more efficient.” Rather than doing away with conditionality, pre-qualification for IMF assistance would imply stricter, up-front conditionality. The report does not discuss what the implications would be for countries that did not qualify for IMF assistance or whether countries would be disqualified if their policies changed. Also, the report does not explain how the IMF could function as a quasi Lender of Last Resort given its limited resources. Nor does it detail how private finance, which seeks to maximise profits, could be effectively used for development objectives. Carol Welch, Friends of the Earth US, commented that “until the IMF‘s chronic lack of accountability and democracy are also dealt with, any reforms are unlikely to have a lasting positive impact.” Several Washington-based NGOs urged that an independent evaluation unit and an ombudsperson should be essential requirements for an overhauled IMF and called for more attention to the environmental and social implications of adjustment lending.
Three democrat-appointed committee members voted against the report and issued a dissenting statement criticising the report for restricting the ability of the IMF to respond to financial crises and for potentially undercutting the fight against poverty by shutting off sources of finance.
In a meeting in London, Meltzer defended the report, saying he did not want to destroy the IMF and World Bank but wanted to clarify their roles; to discontinue the US practice of using the IMF as a foreign policy tool; and reduce opportunities for corruption in developing countries.
For a critique by the Bretton Woods Project and a report on the costs of private sector finance for development, email email@example.com.