IMF’s Value on Display

President Clinton is seeking congressional approval for an increased U.S. contribution to the International Monetary Fund, a once-every-five-years adjustment that has been contentious in the past and this year, at $18 billion, is encountering exceptional resistance. That opposition, focused on the IMF’s economic bailout of several Asian nations, stems mainly from political opportunism, not a careful assessment of the IMF’s role in the global economy.

Addressing this perception problem, Treasury Secretary Robert E. Rubin delivered a speech at Georgetown University Wednesday examining the Asian financial situation and the IMF’s involvement. American interests clearly lie in stabilizing the Asian crisis and limiting its effect on the global financial system. The IMF is helping do that in Indonesia, South Korea, Thailand and Malaysia.

Opponents of the IMF strategy mistakenly claim that U.S. taxpayers are throwing good money after bad. They also claim the IMF is unnecessarily protecting private investors and creditors. In fact, many have suffered significant losses.

Rubin declared that “over the last 50 years our contribution to the IMF has not cost the taxpayer one dime. When the IMF draws on our commitment, we receive a liquid, interest-bearing, offsetting claim on the IMF. There are no budget outlays. Our contribution does not increase the deficit or divert resources from other spending priorities.”

In the regular five-year review, the IMF’s 181 members assess needs and adjust member contributions accordingly. The United States’ general contribution is going up $14.5 billion, with $3.5 billion more required for a new emergency fund.

At the G-7 meeting in Halifax, Canada, in 1995, the United States spearheaded a number of initiatives to strengthen safeguards in the global system. The Asian turmoil has tested these initiatives and proved their value. The new Emergency Financing Mechanism allowed for swift IMF response.

But new standards for capital adequacy are not in place yet, and only 45 of the 181 nations are complying with voluntary standards aimed at improving the quality and timeliness of their financial data. The U.S. contribution would bolster these programs.

If there is one early lesson from the Asian crisis, it is the need for continued modernization of what Rubin calls “the architecture of the international financial markets.” That would be a proper extension of the international effort begun at Halifax. The incredible speed and volume of capital flows around the world demand greater international cooperation.

Rubin acknowledged that changing the “global financial architecture” could make creditors and investors more appropriately bear the consequences of their decisions. Sensible governments should demand nothing less than that kind of accountability.

Few would dispute that the IMF is far from perfect. But it provides an indispensable forum to discuss and address global financial reforms.