International Policy

JEC Report: IMF Needs Reform, Not Expansion

President Clinton's proposed 1999 budget calls for an $18 billion appropriation for the International Monetary Fund (IMF). Along with contributions -- called quotas -- from other industrialized countries, the money would allow the IMF to expand its lending to insolvent central banks at below market interest rates.

However, a report from the Joint Economic Committee of Congress (JEC) says that the IMF is in need of reform rather than expansion.

  • Even without the additional contributions, after completing the bailout of Asian economies the IMF will hold $30 billion in gold, retain some quota resources, and have access to an unused $25 billion line of credit.

  • IMF loans to insolvent central banks at subsidized interest rates encourage foreign investors to take excessive risks and may actually encourage financial instability.

  • The IMF was established to make temporary loans to countries with balance of payments problems; but recent IMF loan packages have required long-term restructuring of major sectors of national economies and significant adjustments to economic policy.

Subsidized interest rates encourage economic inefficiency, says the JEC, and the conditions the IMF imposes on the debtor countries create further economic problems.

The study concludes that meaningful reform of the IMF requires public disclosure of IMF documents and decisions, and an end to IMF interest rate subsidies.

Source: Robert Keleher and Christopher Frenze, "IMF Financing: A Review of the Issues," March 1998, Joint Economic Committee, Washington, D.C.

For text of report see: http://www.house.gov/jec/imf/imfpage.htm

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