SUNS #4301 Wednesday 14 October 1998



UNITED STATES: IMF FUNDING DEAL IMMINENT

Washington, Oct 12 (IPS/Abid Aslam) -- Congress is poised to clear 18 billion dollars in new funding for the International Monetary Fund (IMF) following months of often fractious debate, according to
political sources.

Negotiators in the 435-seat House of Representatives say a deal likely will be announced this week. The legislative session has been extended to enable passage of a federal spending bill for the fiscal year that began Oct. 1 before lawmakers return to their constituencies in advance of elections next month.

Failure to enact a budget would result in a federal government shut-down, which last happened in 1995.

The 100-member U.S. Senate has approved the entire 18 billion dollars in IMF funding requested by the administration of President Bill Clinton. The House, however, so far has withheld a 14.5-billion-dollar expansion of the Fund's capital base. Instead, it has cleared only 3.5 billion dollars to help the global agency respond to financial crises.

Passage of the full sum will overcome opposition by a left-right coalition of lawmakers and grassroots groups seeking to scupper the quota increase. It will mark a hard-won victory for an embattled Clinton and a beleaguered IMF. The former is fighting possible impeachment at the hands of a Republican-held Congress and the latter is trying to bolster its ability to nurse an acutely epileptic world financial system amid criticism it is dispensing the wrong medicines.

Such dissatisfaction notwithstanding, administration officials say they have persuaded key legislators that the global crisis, which has forced record-high U.S. stocks into retreat and trimmed economic growth expectations, demands a stronger IMF.

The United States is the Fund's single largest shareholder and other countries are holding up their contributions to a 45-percent increase in membership subscriptions, or 'quotas', until Washington pays its share.

Anti-funding campaigners have been left to rue the shift in favour of the IMF.

"When (President B.J.) Habibie asked Indonesians to fast, no one stood up and said this is unacceptable," says Njoki Njoroge Njehu, director of the U.S. 'Fifty Years is Enough' network. "But now that investors stand to feel some pain, it is deemed a crisis demanding decisive action - of the wrong kind."

Terms of the IMF funding agreement, drafted during weekend talks with the U.S. Treasury Department and yet to be released, are understood to mirror recent Republican demands. These include less secrecy at the IMF, changes in loan terms, and insistence that borrowing countries
comply with international agreements to open their markets in goods and services to foreign competition.
Confirmation of the deal depends on whether Republicans and the White House can resolve budget disagreements unrelated to the IMF funding. Money for the Fund would form part of a catch-all 'omnibus' budget package, disputed portions of which include provisions to update government computers, give aid to financially ailing farms, and increase defence spending.

High on the list of policy disputes are methods to be applied in the year 2000 national census, whether U.S. aid should go to groups deemed to advocate eased abortion restrictions overseas, and whether some 40,000 Haitian immigrants should be allowed to become permanent residents.

The IMF funding question is considered "second tier" to those disputes, says a Congressional source.

Nevertheless, House Republicans are pushing IMF reform proposals which would require the agency to publish summaries of discussions among its 24-member executive board. The Fund issues statements on specific decisions and country reviews but minutes of board meetings are kept secret for some 30 years.

Republicans also want IMF loans to be made at market rates, adjusted for risk, and limited to 12 months. Higher rates would give countries added incentive to stick to Fund-approved economic policies rather than risk expensive bailouts, they argue, adding that shorter loan durations
would wean countries quickly off assistance and limit the IMF's interference in the market.

Even some Republicans, however, are siding with Democrats opposed to provisions requiring the IMF to impose investment-liberalising conditions on borrowing countries. Critics say this would reinforce efforts to open capital markets - the central goal of the controversial Multilateral Agreement on Investment (MAI), negotiations for which are set to resume in Paris at the OECD later this month.

[There are similar efforts at the WTO, where a study process on trade and investment is being pushed into a negotiations for multilateral investment rules, and including it as one of the items in the proposed new round of trade negotiations (to be agreed at the 3rd Ministerial Conference next year) and UNCTAD's own processes to help developing countries becoming a discussion for a possible WTO multilateral framework on investment.]

That requirement, branded the 'MAI in the IMF' clause, would "open an unlimited door for elements of the MAI to be implemented without Congressional approval but through the IMF," says one Democrat. "It's a sign that the corporate free-trade agenda is being advanced on a number of avenues, multilateral and bilateral. Our effort is to close this avenue at this time."

Congressional sources say the proposal is likely to fail. But measures to condition Washington's money on further IMF efforts to liberalise trade in goods and services likely will be passed.

That trade-off, they add, reflects growing anxiety about instability in global investment - but also fears that trade protectionism will increase as global financial turmoil takes a heavier toll on the
workers and consumers who make up the 'real' economy.
IMF officials, who have sought the quota increase since 1995, would not comment on ongoing Congressional deliberations. However, a senior official recently told reporters that the agency would not be "held hostage" to Congressional conditions but that some reform proposals were "music to my ears".

Officials welcome provisions seen as broadening the Fund's remit and strengthening its hand in dealing with borrowers. Additionally, they say conditions with which they disagree could have little impact because Congress cannot tell an international treaty organisation like the IMF what to do but can only ask the U.S. administration to pursue a reform agenda in discussions with the agency.