The United States will push for the International Monetary Fund to scale back its medium- and long-term lending, Treasury Secretary Lawrence H. Summers said yesterday. His proposal comes at a time when the Washington-based agency is under fire from many members of Congress and outside analysts as too big and too powerful.
"One of the major changes that needs to accompany the tremendous increase in private-sector flows . . . is some reduction in the IMF's role as a steady provider of medium- or long-term finance," Summers told reporters in Washington yesterday.
He declined to elaborate, saying he would do so in a speech he plans to deliver in London today. He said that "a continually changing fund is appropriate for a continually changing world."
The IMF had no immediate response. But in an interview with an IMF internal newsletter, Managing Director Michel Camdessus suggested the IMF has grown for good reasons. "I know that there is, here and there, some nostalgia for a mythical 'good old fund,' limited to a narrow scope of concerns . . ." he said. "This would obviously be a recipe for irrelevance in today's world."
The United States is the fund's largest shareholder, accounting for about 17 percent, or $50 billion, of its capital, so Summers's words will carry clout. If he gets his way, financial officials said, there might be a larger role for the IMF's sister institution, the World Bank, whose job is to focus on long-term development lending.
But Summers made it clear that he sees private money as ruling the roost. "Inevitably private-sector flows will be the dominant source of capital flows to emerging markets," he said. He will seek ways for the IMF to "best supplement, rather than supplant," private money.
The IMF, which is owned by its 182 member governments, was founded in 1945 to give short-term loans to countries that run out of foreign exchange and can't meet their overseas obligations. It has expanded steadily, to the point that it currently is owed about $90 billion by countries that span the alphabet from Albania to Zimbabwe.
Its longest-term loan is three years, but some countries remain on what amounts to financial life support by continually negotiating new loans when their terms are up.
The fund mobilized more than $100 billion of its own and member governments' money to blunt the Asian financial crisis. With those days slipping into memory, for now at least, many economists are praising its role.
Summers yesterday called the fund "indispensable" and said that "we would all not be breathing nearly as easy as we are today if the IMF had not taken the steps it did during the financial crisis."
At the same time, the IMF has drawn criticism from conservatives who see it as oversized, unaccountable and incompetent, a financial sinkhole for taxpayers. Liberals cast blame too, calling the fund heartless for demanding painful economic changes from already poor countries. Whenever the White House goes to Congress for funding, then, there is mistrust.
The International Financial Institutions Advisory Commission, a study group that Congress set up to propose changes, is also leaning toward calling for a slimmed-down IMF. Under draft recommendations approved by the group, the fund's role would be limited to collecting data on economic conditions and lending temporarily to countries unable to get money from commercial sources.
Yesterday, Summers also said that a program to forgive some of the debt of the world's poorest countries is on track to begin early in the new year. Bolivia, Uganda, Mozambique, Mauritania and other countries are first in line to take part, he said. Other countries might be added to the list.
The United States supports a decision by Camdessus to withhold further IMF funding for Russia until that country makes more structural changes to its economy, he said.
Summers declined to comment on whether the United States would support Caio Koch-Weser, a German deputy finance minister, who has been mentioned in Europe as a possible new IMF head when Camdessus steps down early next year. By tradition, Europe selects the IMF's chief.
Staff writer John M. Berry contributed to this report.
CAPTION: Treasury Secretary Lawrence H. Summers.