Treasury Secretary Lawrence H. Summers yesterday proposed broad changes at the International Monetary Fund, saying it should focus on making short-term emergency loans, demand better accounting by recipient countries and become more open to public scrutiny.
The IMF "should not be a source of low-cost financing for countries with ready access to private capital, or long-term welfare for countries that cannot break the habit of bad policies," Summers said in a speech to the London Business School yesterday that elaborated on remarks he made to reporters in Washington on Monday.
Summers proposed cutting back on the fund's longer, three-year loans and raising interest rates on some short-term loans, to encourage countries to repay them more quickly. "The IMF must be a last, not a first resort," he said, according to a copy of the speech released in Washington.
The Washington-based IMF led the international rescue operations that bailed out several Asian countries hit by financial panics in 1997. The size of its loans--it now has about $90 billion outstanding--and the stiff conditions on which the money was given, led many members of Congress to criticize it as too big and unaccountable.
The IMF is owned by its 182 member countries; roughly half of them have some type of loan outstanding. The United States, providing about 17 percent of the fund's capital, is its biggest single contributor.
One of the fund's most frequent critics in Congress, Senate Banking Committee Chairman Phil Gramm (R-Tex.) welcomed Summers's remarks. "Having a leaner, tougher agency is always good," he said in an interview yesterday. ". . . Lending on a short-maturity basis is the way the IMF should function." He predicted that other major IMF countries would support the changes Summers proposed.
In a statement, the IMF said yesterday that Summers "has touched on a number of critical areas that need to be considered as we draw the lessons of the recent crisis and prepare the fund for the future."
From London, Summers goes to Berlin to promote his ideas at the first meeting of the "G-20," a group of countries discussing reforms in the world financial system.
In his speech, Summers also said the IMF should:
* Better promote the flow of reliable financial information from foreign markets. For instance, he called on it to require and publish audits of central banks that are receiving IMF loans. The IMF has demanded such audits from such countries as Russia and Kenya but does not require them generally.
* Help countries monitor their "financial vulnerability," so that financial officials can track situations that can sneak up and cause crises, such as when what may be thousands of loans come due.
* Work more closely with private lenders through formation of a Market Conditions Advisory Group. Private lenders, he said, should realize the IMF will not always come in with rescue packages that will keep them whole.
* Give the World Bank the lead role in a global debt relief program for desperately poor countries.
* Reform itself internally. The fund should create a governing structure that is "more representative" and work more closely with outside interest groups. It should publish its operational budget, which it has not done on the grounds that it would reveal fund thinking about various currencies.
Summers did not propose blanket changes to the controversial IMF practice of insisting that borrower governments undertake painful economic changes before getting money. But he said requirements should be made case by case.
Aid groups have long alleged that IMF polices can exacerbate conditions in poor countries.
Lydia Williams, policy adviser for Oxfam America, responded positively to Summers's speech.