IMF Ponders Crisis Prevention at Meeting
Sat Sep 28, 8:32 PM ET
dailynews.yahoo.com
By Mark Egan
WASHINGTON (Reuters) - The International Monetary Fund ( news - web sites)
held the centerpiece of its annual meetings here on Saturday, and announced
changes aimed at making economic crises like those that have bedeviled
Argentina and Brazil less frequent, as 3,000 police kept protests subdued.
The global lender's policy-setting International
Monetary and Financial Committee, comprising
finance ministers from rich countries and the
developing world, met on Saturday to set the IMF's
agenda for the coming six months.
Top of the agenda was how best to shore up the
nascent global economic recovery, which has not
taken hold as quickly or as strongly as the IMF had
hoped just a few months ago. The IMF called on rich
nations to rebuild confidence shaken by plunging
stock markets, and urged Europe and Japan to
speed economic reforms to bolster their long-term
growth prospects.
"We meet here in Washington at a testing time for
the world economy, with 20 countries accounting for
half the world's output having been at some point in
the last year or this year in recession," Gordon
Brown, chairman of the IMFC and British finance
minister, said at a news briefing after the meeting.
"Aware ever more of our interdependence, we are now
more than ever aware that it is only by each country
taking necessary action that we shall secure the economic growth we wish to
see," Brown said at a news briefing.
Earlier at the meeting, U.S. Treasury Secretary O'Neill said, "North America
continues to be the engine of global recovery," and others must do more to
bolster prospects.
The IMFC called on Europe to reform labor and product markets and for Japan
to tackle its banking and corporate problems, where, "monetary easing should
help end deflation."
But with key Latin American nations embroiled in economic turmoil and others
there looking increasingly vulnerable, crisis prevention took center stage at the
meeting.
Meanwhile outside the meetings, peaceful protesters gathered. The rag-tag
bunch, who oppose everything from the World Bank ( news - web sites)'s
involvement in oil and gas projects to the need for more debt relief for poor
countries, numbered only a few thousand after police depleted their ranks with
more than 600 arrests in scattered street skirmishes on Friday.
The number of protesters paled in comparison to the crowds in April 2000, when
tens of thousands of anti-globalization demonstrators turned the streets near
the IMF's headquarters into something of a siege zone.
On Saturday the closest the thousands of protesters got to the IMF was a few
blocks away where they rallied for much of the afternoon, causing minor
disruption to city traffic.
BANKRUPTCY COURT
Perhaps the single most important development on Saturday was the IMFC
charging the IMF to come up with a plan by April to pave the way for setting up
some sort of international bankruptcy court to deal with what should happen if a
country defaults on its debts.
The IMFC told the IMF to, "develop for consideration ... a concrete proposal for
a statutory sovereign debt restructuring mechanism to be considered by the
membership."
The issue has been spurred by the economic collapse and subsequent default
of Argentina -- the former Wall Street darling and erstwhile poster child of IMF
reforms. And with Brazil hit by investor worries that a $250 billion debt default is
possible, there is finally agreement that something must be done to avoid a
repeat of the Argentine debacle.
The IMF hopes a new bankruptcy court will make the process of default more
predictable, less painful and eventually act as a steadying influence on
emerging market investors.
"This is part of an integrated process for better crisis prevention," IMF Managing
Director Horst Koehler said.
And, hoping to allay Wall Street opposition, he added, "This ... will not
undermine the credit culture in the global economy. It is a last resort."
The fund's approach complements another plan endorsed on Friday by the
Group of Seven industrialized nations -- the United States, Japan, Germany,
Britain, Canada, France and Italy. The G7 said on Friday all emerging market
bonds should now include so-called collective action clauses detailing what
should be done if a default occurs.
While rich countries support the approach of both collective action clauses and
an international bankruptcy court, not everyone agrees. The G24, a group of top
emerging market economies, said on Friday it was "open-minded" about the G7
plan but "skeptical" about the IMF's idea. Wall Street too opposes the IMF's
plans.
Mexico, a key emerging market because of its investment-grade credit rating,
opposes the IMF's approach. The nation is more open to collective-action
clauses, but Finance Minister Francisco Gil Diaz said on Saturday he doesn't
see, "either lenders or borrowers seriously considering them."
Nevertheless, the fund is convinced an international bankruptcy court will help
its broader crisis-prevention efforts to stop problems before they happen.
The discussion comes as Argentina's economy flounders in a state of collapse
after nine months of failed talks to restart aid. Meanwhile Brazil is mired in a
crisis of confidence ahead of October presidential elections, which prompted
the IMF to fork out a record $30 billion bailout earlier this month.
Koehler dismissed market fears that Brazil's crisis will end in a debt
restructuring, saying, "Brazil will come out of this situation without a debt
restructuring."
But even while the IMF showered Brazil with praise in recent days, its real
currency has plumbed new lows.
This latest summit has been notable for increased impatience about what
many, including the heads of the IMF and World Bank, view as the hypocrisy of
rich nations' trade policies and low aid levels.
Brown said there was now a "new deal for the world economy" where rich
nations would increase aid and investment in developing nations in return for
reforms there. But even as he made that statement, he urged donor nations to
come through "urgently" with $1 billion to keep an already-promised debt relief
plan for the world's poorest nations afloat.
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