Meltzer Report on Bretton Woods Twins
Meltzer Report on Bretton Woods Twins
Pushing Meltzer to the Max!
As thousands of protestors descend on Washington for the 16 April action against the World Bank and the International Monetary Fund, they can take comfort in the fact that a growing number of people in high places share their views.
During the heated debate on whether or not to raise the US quota in the IMF in 1998, the US Congress voted for the quota increase but attached several conditions, including the creation of an independent body to look at the missions and performance of the World Bank and the
The report of the International Financial Institution Advisory Commission, better known as the 'Meltzer Report' after its chairman Alan Meltzer, serves as a striking confirmation from the mainstream of what progressive critics of the Bretton Woods Institutions have been saying for the last 25 years. Among the most important claims in the corpus of critical literature that the report supports are the following:
There is little in the report that was not earlier documented in such works as Cheryl Payer's The Debt Trap, Bruce Rich's Mortgaging the Future, Susan George's Faith and Credit, and the Food First trilogy Aid as Obstacle, Development Debacle: The World Bank in the Philippines, and Dark Victory: The US, Structural Adjustment, and Global Poverty. But then the importance of the document lies not only in its critique but in the fact that a significant part of the establishment has embraced much of the progressive analysis, and, even more significantly, has made fairly radical proposals for the future of the Bretton Woods twins.
Criticisms of the IMF have found a very receptive global audience recently owing to the devastating performance of the Fund during the Asian financial crisis. To the credit of its authors, the Meltzer Report was not taken in by the World Bank's propaganda that, in contrast to the IMF, it
The IMF: No Redeeming Value
While diplomatic in its language when discussing the IMF, the report finds little of redeeming value in the institution. It shows that the Fund's foray into macroeconomic reform via structural adjustment institutionalised economic stagnation, poverty, and inequality in Africa and Latin America in the 1980's and 1990's-precisely what we had documented in detail in our 1994 book Dark Victory: the US, Structural Adjustment, and Global Poverty.
It confirms that the Fund's duty of ensuring a stable global financial order was derailed by its prescription of indiscriminate capital account liberalisation for developing countries, its habit of assembling financial rescue packages that simply encouraged moral hazard or irresponsible
The report is on the right track when it recommends the closure of the structural and extended structural adjustment programs, now renamed the 'Poverty and Growth Facility'. And it is correct in recommending downsizing the IMF in both size and its scope of responsibilities, though
The report is, however, wrong in its recommendation that the IMF should serve as a 'quasi-lender of last resort' to countries suffering a liquidity crisis. The IMF, by the Commission's own account, has handled this function badly in the past. Moreover, the Commission's recommending of strict conditions under which the IMF may extend credit contradicts its own criticism of the use of IMF resources and conditionality to control the economies of developing nations.
Particularly objectionable is the Commission's proposal that the Fund provide liquidity assistance only to those countries that permit freedom of entry and operation for foreign financial institutions on the ground that these entities would, among other things, stabilise and develop the local financial system. This recommendation is problematic for two reasons. First, foreign financial institutions such as hedge funds, which have taken full advantage of free entry and operation, have helped precipitate one financial crisis after another. Second, forcing countries to adopt western-style free market norms governing ownership of foreign financial subsidiaries and their local operations violates the first core principle it proposes for IMF reform - that is, sovereignty-the desire to ensure that democratic processes and sovereign authority are respected in both borrowing and lending countries.
This contradiction between the logic of the analysis and the prescription reminds us that the Commission is, after all, a US government-appointed body, many of whose members come from the banking sector, conservative think tanks, and establishment universities who are very wary about placing significant restrictions on the free flow of finance capital globally, even when the evidence they are staring at underline the destructiveness of unchecked capital mobility.
The World Bank: Hype versus Substance
When it comes to the World Bank, the report is equally devastating. The rhetoric about focusing on poverty alleviation, it says, is contradicted by the reality that 70 per cent of the Bank's non-aid lending is concentrated in 11 countries, while the Bank's 145 other member countries
In terms of achieving a positive development impact, the Bank's own evaluation of its projects shows an outstanding 55-60 per cent failure rate. The failure rate is particularly high in the poorest countries, where it ranges from 65 per cent to 70 per cent. And these are the very countries that are supposed to be the main targets of the Bank's anti-poverty approach.
The picture that is drawn of the World Bank is that of a massive institution that is driven to lend more by institutional imperatives than
Reform or Abolition?
The Meltzer Report's basic conclusion is that the IMF and the Bank are monolithic institutions that have outlived their usefulness. Now,
To borrow the language of Thomas Kuhn's classic Structure of Scientific Revolutions, both institutions are like paradigms in crisis,
In other words, rather trying to find a function for the Fund and assigning to it the role of being a lender of last resort, we would do better to scrap it totally and create a new institution that does not have the baggage of institutional failure and an obsolete institutional mindset and is thus better positioned to manage financial crises in this era. Rather than expect the highly paid World Bank technocrats who live in the affluent suburbs of Northern Virginia to do the impossible- designing anti-poverty programs for folks from another planet: poor people in the Sahel - it would be more effective to abolish an institution that has made a big business out of 'ending poverty', and completely devolve the work to local, national and regional institutions better equipped to attack the causes of poverty. And this task should not fall to the regional development banks so long as they are imprisoned by World Bank-type structures.
The Meltzer Report does not go far enough. It does not follow the logic of its analysis to its inevitable conclusion: the abolition of the
Copyright 2000 Focus on The Global South