World The IMF wrapped up its annual meeting in Istanbul yesterday with a commitment to relax its stringent lending rules to help the world recovery.
IMF opens lending taps to boost world economy
ISTANBUL // The IMF wrapped up its annual meeting in Istanbul yesterday with a commitment to relax its stringent lending rules to help the world recovery. Still, not all the delegates who had gathered on the shores of the Bosphorus went home happy with the new focus of the multilateral agency. Dominique Strauss-Kahn, the managing director of the IMF, used his speech to draw attention to the so-called Flexible Credit Line, a new financial instrument to pump money to countries in need without the demanding conditions for which the agency had become known.
Anti-globalisation activists say harsh conditions attached to such loans in the past made life miserable for millions of people around the world. Mr Strauss-Kahn insists the IMF has changed. The Flexible Credit Line was "granting rapid upfront financing in large amounts to countries with a proven track record, with no additional conditionality", he said. "As for our other programmes, we streamlined our conditionality, focusing only on core policy measures that are critical for macroeconomic stability and growth."
The governor of the Vietnamese central bank and chairman of the meeting, Nguyen van Giau, said the new IMF approach won plaudits. "We recognised the fund for driving the immediate international policy response to the crisis, and for rapidly providing financing to countries in need through vastly augmented resources," he said. Mr Strauss-Kahn's new approach was not universally accepted, however. Some wonder whether the IMF, with US$750 billion (Dh2.75 trillion) to lend, is taking too big a risk. "What happens if we give away all that money now and then countries say, 'sorry, but I can't pay it back'," one western official said in Istanbul.
Axel Weber, the president of the central bank in Germany, warned that recipient countries may be tempted to leave the path of economic reform and prudent financial policy because IMF bailout money was so readily available, a phenomenon known as "moral hazard". With the recent injection of $500bn into the IMF by the Group of 20 leading and developing nations, that danger was increasing, Mr Weber warned. He called on the IMF to make sure member states knew that the party would not last forever.
"Moral hazard issues - arise from the vast increase in fund resources that is currently taking place," he told delegates. "This increase should be viewed as a temporary measure, taken in response to extraordinary developments in the world economy." As soon as the crisis subsided and the global recovery gained strength, the IMF should return to stricter lending rules, Mr Weber said adding that the fund "should eventually prepare the exit from its exceptional resources".
Other critics say Mr Strauss-Kahn's expansionary policy does not go far enough. The Center for Economic and Policy Research (CEPR), a think tank in Washington, said during the Istanbul meeting the IMF was still imposing strict conditions on countries in need, worsening the effect of the global crisis on those countries. "The IMF supports fiscal stimulus and expansionary policies in the rich countries, but has a much different attitude toward low and middle-income countries," the report said. CEPR also noted "that in some cases the fund later loosened its policy conditions after the economic performance was much worse than anticipated".
Another problem, critics say, is that many poorer countries do not have the power to influence IMF policies. While the fund is to shift 5 per cent of voting rights from rich industrialised countries to emerging economies by 2011, it is not clear yet how this will be achieved. "If the IMF wants to be relevant, effective, credible and legitimate, it has to give countries hardest hit by the financial crisis a say in their own destiny," Caroline Pearce. of the Oxfam aid group in the UK, told the Agence France-Presse news agency.
Still, Mr Strauss-Kahn had expressed confidence before the conference, attended by 13,000 representatives from around the world, that the proposed IMF changes would herald a new era. "You may say later when you will be talking to your grandchildren that you were in Istanbul at this time," he told reporters before proceedings got under way. email@example.com