Conditionality—This Time, Attached to the IMF
The U.S. Congress’s Waiting Game

For months now the Clinton administration has been warning Congress that failure to provide the International Monetary Fund with more money would be a reckless act, exposing the global economy to new crises and endangering the livelihoods of American workers in the process. But congressional approval of a proposed $18 billion contribution to the IMF is looking uncertain. Both the Senate and the House of Representatives have considered supplemental appropriations bills containing the $17.9 billion the Clinton ad-ministration has requested for the IMF. Both bills request specific reforms in IMF operations or policy. The Senate passed a supplemental appropriations bill on March 26, 1998, to grant the Clinton administration’s request for $17.9 billion for the IMF. It requires the Secretary of the Treasury to certify that the world’s seven largest economies—the so-called Group of Seven (G-7) countries—agree to use their influence to push two specific reforms in IMF policies. These reforms would obligate recipients of IMF assistance to:

• End government subsidies and directed lending.

• Comply with international trade agreements.

The reform provisions for the IMF in the House bill are very similar to those originally present in the Senate bill: before the funds appropriated in the bill can be disbursed, transferred, or made available to the IMF, the Secretary of the Treasury must certify that the IMF’s Board of Executive Directors passed a resolution requiring every user of IMF re-sources to:

• Comply with all international trade agreements and obligations to which the borrower is a party.

• Eliminate government-directed lending or subsidies.

• Guarantee that countries would not discriminate between domestic and foreign creditors or debtors when resolving debt problems.

In addition, the House bill includes three directives that:

• The Department of the Treasury report on advances in financial transparency, application of internationally accepted accounting practices, elimination of subsidies, and improving the effect of IMF assistance on workers’ rights.

• The President ensure that no U.S. re-sources are "made available, directly or indirectly, to promote unfair competition against the American semi-conductor industry."

• The IMF member countries establish an advisory commission on the international financial system. Representatives Jim Saxton (R-NJ), Richard K. Armey (R-TX), and Tom Campbell (R-CA) have submitted new legislation to Congress, the IMF Transparency and Efficiency Act of 1998 (H.R. 3331), which would require the IMF’s Board of Executive Directors to initiate three specific reforms:

• Increase transparency by requiring the IMF to make available for public scrutiny:
  —An edited copy of minutes from every meeting of the IMF Board of Governors and Board of Executive Directors, within three months of the meeting date.
  —An edited copy of every loan and pro-gram document, a written review of pro-gram and loan performance, and all documents related to any loan program of the IMF, within three months of sub-mission of the document, review, or assessment.

The IMF is entitled, however, to censor its meeting minutes, loan agreements, and performance reports before presenting them for public scrutiny, allowing the Fund to strike passages compromising national security or releasing proprietary information, or information that, if re-leased, would disrupt markets.

• Eliminate interest rate subsidies on IMF loans by charging market-deter-mined interest rates, ensuring that IMF loan recipients are held to the same standards for loans as private individuals and companies.

• Establish an independent, 24-member advisory board, appointed by the legislatures of the members of the IMF’s Board of Executive Directors, to review the research, operations, and loan pro-grams of the IMF. The advisory board would release public reports annually on its activities and conclusions.

Effective six months after the enactment of the bill, the Secretary of the Treasury would be required to submit a written certification to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Banking and Financial Services on the status of the reforms specified in the legislation. Once the Secretary of the Treasury had submitted the certification, Congress would enact a joint resolution verifying and approving it. The certification must be renewed annually.

House Speaker Newt Gingrich said on April 30 that Congress could act by midsummer on $18 billion pledged to the International Monetary Fund—if the White House makes full disclosure of controversial campaign contributions from Indonesian business interests, and if IMF employees pay income taxes. "We will support and provide money for an IMF which is transparent, agrees that policies other than higher taxes are legitimate, and is willing to work out how its own staff understand what taxation is all about," the Georgia Republican said. (IMF employ ees effectively do not pay federal, state, or local income taxes under exemptions enacted by Congress in the 1940s, following the creation in 1944 of the IMF and the World Bank. U.S. citizens employed by the IMF pay federal income taxes, but they are reimbursed quarterly by the IMF.)

Congressional Democrats, led by House Democratic leader Richard Gephardt, are demanding that the administration abandon efforts to change the IMF charter—agreed during the spring meetings of the World Bank and the IMF, in April. The proposed change would extend the IMF’s jurisdiction to the liberalization of capital movements. Democrats instead want IMF loans to support social safety nets aimed at protecting those most injured by economic adjustment, provide education and training, establish core labor standards, and promote democracy and human rights. Adding a commitment to the completely free movement of capital will worsen inequality, unless it is ac-companied by policies that substantially mitigate its impact, the Democrats wrote in a letter to Robert Rubin, Secretary of the Treasury. If their demand is not met, they will withdraw their support for the U.S. share of IMF capital expansion.

"There is little dispute the fund’s resources have been depleted by the crisis in Asia, where the IMF has pledged to lend $35 billion of its own money toward the more than $100 billion in rescue packages for Thailand, South Korea and Indonesia. Those commitments leave the IMF, a sort of international credit union that is funded by deposits from its 182 member nations, with about $40 billion in U.S. dollars, Japanese yen and other hard currencies. Less than half of that is avail-able, in practical terms, for lending to financially strapped countries, because of the need to maintain a cushion of reasonable size. Thus the IMF is in no position to handle another Asia-size crisis that might arise, for example, in Latin America or Eastern Europe—at least not by using its own money as aggressively as it did with the Asian tigers," writes Paul Blustein, staff reporter of the Washing-ton Post, in the April 25 issue.