Finance ministers demand IMF overhaul debt policy©Associated Press
September 29, 2002
WASHINGTON -- Finance leaders directed the International Monetary Fund on Saturday to develop a dramatic new approach to resolving debt crises that have engulfed countries from Asia to South America.
The goal is creation of a process by which nations with unmanageable debt could declare bankruptcy and force creditors to negotiate more lenient repayment terms.
The order for the 184-nation IMF came from the lending institution's policysetting committee of finance ministers.
The step is a milestone in overhauling the global finance system. The effort began after the Asian currency crisis of 1997-98 pushed 40 percent of the world's economy into recession.
The announcement by Britain's chancellor of the exchequer, Gordon Brown, and the IMF's managing director, Horst Koehler, was likely to be the biggest achievement of this year's annual meetings of the IMF and World Bank.
The meetings came against a backdrop of rising worries about the uncertain economic recovery from last year's recession. Chief concerns are plunging stock markets, Latin America's debt crisis and possible war in Iraq.
The finance ministers who serve as the IMF's board of directors sought to allay those fears. Treasury Secretary Paul O'Neill said "handwringers" were ignoring positive economic developments.
But efforts to project an optimistic front were undermined by mixed signals by financial officials from Japan about how Japan planned to deal with its troubled banking sector and revive the world's second largest economy.
As in the past, the meetings attracted thousands of antiglobalization protesters who say the institutions' policies favor wealthy nations.
The second day of demonstrations began peacefully Saturday with a festive rally on the grounds of the Washington Monument, where the crowd cheered speakers addressing a variety of causes, from Third World debt to AIDS to possible war against Iraq.
The crowd numbered about 2,000, according to reports to D.C. police. Authorities widened their security perimeter in downtown Washington and only a few arrests were reported by nightfall Saturday, a sharp contrast to the 649 taken into custody Friday.
From the monument, protesters moved to a downtown park, where they burned American flags and, in effigy, a symbol of the IMF and World Bank.
"We want them to immediately cancel the debt to all African nations that are suffering from AIDS and allow that money to be spent in those countries to buy drugs to keep people alive," said Paul Zeitz, 40, director of the Washington-based Global AIDS Alliance.
While critics of the two organizations complained that the wealthy nations were not putting up sufficient money to help poor countries, World Bank President James Wolfensohn rejected that view. He said the United States and European Union have pledged a combined $12-billion increase in foreign aid over the next three years, which he said would be enough to launch initiatives in a number of areas to achieve the United Nations' goals of cutting world poverty in half by 2015.
"We have jaw-jawed enough and now we must focus on implementation," said South African Finance Minister Trevor Manuel, chairman of the World Bank's policysetting panel, who along with Wolfensohn briefed reporters at the close of Saturday's talks.
The bankruptcy proposal faces stiff opposition from large banks in the United States and other wealthy countries that make loans to developing countries. But O'Neill, speaking Saturday night to the Institute of International Finance, which represents the world's biggest banks, appealed to the group to help policymakers come up with an acceptable approach to national bankruptcies.
"Every one of you in this room must engage in this effort -- we owe that to the people who have suffered from the chaos of the current system," O'Neill said in prepared remarks.
The Bush administration originally favored a limited approach by which a majority of creditors could agree to accept lower repayments from countries in dire circumstances.
A week ago, the administration indicated it supported a two-track approach that included its proposal and the more sweeping IMF plan.
Koehler said hard work lies ahead in developing the details to put the bankruptcy process into place. The IMF will listen to the concerns of banks and others creditors, he said.
The proposal will be presented to the IMF's directors in April. The plan ultimately would require approval from each of the organization's 184 members.
O'Neill and Brown both expressed optimism that despite the current economic turmoil, the world was on track for higher growth.
"I don't find the world such a gloomy place," O'Neill said. Brown said there was a commitment from the world's seven wealthiest countries that "each continent has to play its part in creating conditions for faster growth."
Intruding upon that optimism was a disagreement in the Japanese delegation. Finance Minister Masajuro Shiokawa publicly rebuked his top aides Saturday for a statement that contradicted an assertion he had made the day before about his talks with O'Neill.
Shiokawa had said he held out the possibility that Japan would use government money to shore up troubled banks. The dispute left other nations wondering what policies Japan would pursue.
As another response to the protesters, Brown said a group of 15 rich countries would soon announce commitments to fill a $1-billion financing gap in a program that provides debt relief for the poorest nations.
That did not impress debt relief advocates. Julia Tilford, a spokeswoman for Oxfam International, said the money was a "patch up job for what is a failing initiative" that needed fundamental reforms.
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