SUNS  4287 Thursday 24 September 1998

Washington, Sep 21 (IPS/Abid Aslam) -- The World Bank and International Monetary Fund (IMF) appeared unimpressed Monday despite ringing appeals from British Prime Minister Tony Blair and
other world leaders to redesign the aging institutions.

"There are a lot of ideas being put forward these days and they'll all receive attention at the upcoming meetings" of the Fund/Bank governors here next month, a World Bank spokesman told IPS. Meanwhile, the agency declined to comment on specific proposals.

Likewise, the IMF had nothing to say but one well-placed source noted that, despite Blair's call for leaders to "think radically and fundamentally" about reforming the international financial
system, he mainly summarised existing proposals. These including some from the recently-formed 'Group of 22' leading industrial and developing countries.

"No one is proposing anything bold," said another insider. "That's because no one is willing to take bold action."

Speaking at the New York Stock Exchange, Blair urged an overhaul of the 54-year-old Bretton Woods system within 12 months. The current economic crisis had shown that the system's principal institutions - the IMF and World Bank - were unsuited for a world dominated by massive private capital markets, he said.

"We need to commit ourselves today to build a new Bretton Woods for the next millennium," said the British leader, who is current chairman of the Group of 7 industrial nations. He proposed five
priorities for action: more transparency in the world financial system, better supervision and regulation, faster international responses to liquidity crises, better handling of capital flows,
and more openness at the IMF.
"Around a quarter of the world economy is now in recession and many other countries in Latin America and Asia are facing financial market pressures," he noted.

In response to the troubles, "countries have had to cut domestic spending and reduce their trade deficits, often very sharply. But some have also opted for short-term palliatives. This... risks undermining the efforts of those countries conscientiously pursuing sound policies and far-reaching structural reform."

Therefore, he argued, "in the short term it is crucial that emerging markets and developing countries press ahead with reform.
The lesson from the current crisis is not that market disciplines have failed, but that in a global economy, with huge capital flows, the absence of such disciplines can have a devastating effect."

Blair urged "swift and strong fiscal action to boost domestic demand" in Japan and called on fellow G-7 members to ensure sustained economic growth and "reject protectionist pressures."

In the long term, he added, the right framework would include monetary policy targeted at low inflation; fiscal policies and structural reforms designed to improve the supply side performance
of the economy; tax systems that work; and strong banking systems. The IMF should provide short-term support to countries in crisis but only in exchange for these reforms.

"The IMF itself could have written that portion of his speech," said Soren Ambrose, policy analyst with the U.S. 'Fifty Years is Enough Network'.

Blair's approach, while seeming to reassure on trade questions, remained "consistent with the general tendency to shift the blame for the crisis to the countries in crisis," observed Doug Henwood, author of 'Wall Street' and editor of the 'Left Business Observer'.

"They're just trying to come up with excuses after the fact and get the capital markets off the hook," most notably by emphasising the question of transparency, Henwood told IPS.

"I can't seriously believe the people who poured money into Southeast Asia, Russia, and Latin America either didn't know about the corruption or couldn't find out if they wanted to," Henwood
exclaimed. Lending risks in Thailand and the depth of corruption in Indonesia were widely known, he and market analysts said.

"We cannot look to the public environment as a source of improved stability," said Catherine Mann, senior fellow at the Institute for International Economics here.

"We also have to demand more of the financial markets themselves."

Beyond improved regulation and accounting procedures, private markets could develop their own insurance instruments to minimise capital flight and contagion risks. "Insured lenders will not
abandon insured borrowers," Mann reasoned.

IMF and World Bank officials (who advocated and pursued restructuring and overhauling of the financial institutions in the crisis-ridden Asia) argued that overhauling their agencies in the middle of the crisis would serve only to add confusion and undermine confidence at a delicate time in international markets. But did they contribute to the panic in the first place?

Commercial credit agencies have been assailed for fanning the flames of contagion in Russia and Latin America in the past few months, but the IMF and U.S. Treasury must share the blame for
rattling investors in Asia, economic analysts said.

"By setting up the debtor countries as the villains of the story, Washington has added impetus to the accelerated outflow of capital from the borrower countries," argued Jeffrey Sachs, director of the
Harvard Institute for International Development.

"To have the core of the international community stand up and say: 'Look at how bad you are' is a way to break the confidence of the financial markets even more than they were broken when the capital started to flow out of Asia in the latter half of 1997," he noted.

Sachs, who recently called for the resignation of IMF Managing Director Michel Camdessus over the Russian debacle, has been criticised for his own "shock therapy" approach to privatisation
immediately following the collapse of the Soviet Union.

In the U.N. General Assembly Monday, Brazilian Foreign Minister Luiz Felipe Lampreia declared that "Despite the undeniable international nature of the phenomenon, governments and societies
simply do not fully trust the existing organisations... as a source of support, guidance, or even interpretation of the problem at hand."

For his part, Blair said new reform efforts should "reach out to a wider community" of financiers, economists and businessmen in rich and poor countries.

"That covers about one-tenth of one percent of humanity," Henwood noted wryly.