COMMERCIAL POLICY

1
COMMERCIAL POLICY

• BY
• ALEJANDRO VELEZ, PH.D.

2
COMMERCIAL POLICY

• A WHOLE HOST OF ACTIONS BY SOVEREIGN GOVERNMENTS
  WHICH TRADITIONALLY HAVE CENTERED ON REGULATING
  IMPORTS (AND SOMETIMES EXPORTS, E.G., US SUPER
  COMPUTERS) BUT WHICH CAN ALSO INCLUDE POLICIES ON
  INVESTMENTS, THE ENVIRONMENT. LABOR, ETC.

3
COMMERCIAL POLICY

• HOW DOES THE US PROPOSE AND
• AND ENACT COMMERCIAL POLICY LEGISLATION?
• DIFFERENTLY FROM OTHER DMES!
• HOW?
• ______ AUTHORITY

4
COMMERCIAL POLICY

• POLITICAL PARTIES AND PRESIDENTS HAVE VARIED IN
  APPROACHES BUT THERE HAS BEEN UNEXPECTED
  COMMONALITIES. I THINK ECONOMISTS HAVE BEEN A
  MAJOR REASON. CEA MAGNIFIED OUR INFLUENCE. GOOD
  RESEARCH AND PRESTIGE OF PROFESSION, ETC.

5
COMMERCIAL POLICY

• THE STRANGE CONVERSION OF WILLIAM J. CLINTON TO A
  FREE TRADER.
• AL GORE MAY NOT BE SO CONVINCED??
• NADER, BUCHANAN MAY BODE POORLY FOR FREE TRADE?

6
US COMMERCIAL POLICY

• PRE-GATT

7
US COMMERCIAL POLICY

• GATT UP TO COLLAPSE OF SOVIET UNION

8
US COMMERCIAL POLICY

• 1989 TO LAUNCHING OF WTO

9
US COMMERCIAL POLICY

• WTO
• URUGUAY ROUND
• ISSUES (INTELLECTUAL PROPERTY, SERVICE TRADE,
  BANKING/INVESTMENT, AGRICULTURAL SUBSIDIES,
  STEEL-CHEMICALS,
• ACCOMPLISHMENTS

10
REFORM OF IMF, WORLD BANK A CASE STUDY

• MELTZER REPORT
• BACKGROUND (R.V.,R.A.,L.C.,T.P.)
• PROPOSALS (E.G.,S.H.,D.B.)
• PROS AND CONS(J.H.,K.C.,D.S.,J.M.)
• CONCLUSIONS (S.T., A.V.)

11
Meltzer Commission (Background)

• International Economics

12
International Financial Institution Advisory
Commission

• Established in 1998 to oversee American funding
  in International Financial Institutions
• Had a very short life (6 months) and made many
  findings

13
Reasons for Establishment

• Congress wanted to know what good was coming from
  money that was used for Foreign Aid
• Assessment of International Financial
  Institutions was wanted for the financing of
  future Foreign Aid Programs

14
Reasons for Establishment (cont.)

• Oversee roles of seven international financial
  institutions
• IMF
• World Bank
• Inter-American Dev. Bank
• Asian Dev. Bank
• African Dev. Bank
• WTO
• Bank for International Settlements

15
Votes of the Commission

• Write-off all claims against HIPCS(heavily
  indebted poor countries)
• End practice of extending long-term loans for
  poverty reduction

16
Exchange Types

• Bretton Woods (Fixed on the Dollar)
• Establishes the IMF and World Bank to help in the
  redevelopment of torn countries from WWII
• Aid was based on a fixed rate system
• Dirty Float (No more fixed rates)
• Causes problems with initial plans of IMF and
  World Bank- they were established to work with a
  fixed exchange rate
• GATT established in 1948 to reduce tariff
  barriers.
• WTO replaces GATT in 1995

17
Problems of Institutions

• High Cost with Low Effectiveness

18
REFORM OF IMF, WORLD BANK

• MELTZER REPORT
• POLITICS

19
REFORM OF IMF, WORLD BANK

• MELTZER REPORT
• ISSUES

20
Major Proposals of the Bank for International
Settlements

• Proposals for Change and Growth

21
Three Categories of the BISs Tasks

• International Monetary and Financial Cooperation
• Agent and Trustee activities
• Financial Assistance to Central Banks

22
Role of the BIS

• Acts as secretariat for several committees who
  propose international standards and offer
  guidance on so called best practices.

23
BIS Proposals

• The Capital Accord, set minimum capital standards
  for international banks.
• It called for linking capital requirements to a
  crude measure of the banks risk by assigning
  different risk weights for different categories
  of bank assets or commitments.

24
Capital Adequacy Framework

• Expected to give banks more choice in assessing
  credit risk by allowing them to adopt an internal
  rating system.
• This is used to set capital requirements and by
  linking required capital, where possible, to
  credit-rating agencies ratings of bank
  borrowers.

25
Basal Committee on Banking Supervisions 25 Core
Principles for Effective Banking Supervision
(Principles Covered)

• Conditions for Supervision
• Licensing
• Structure of the Banking System
• Prudential Regulation
• Methods of ongoing supervision

• Information gathering and use
• Powers of Supervisors
• Cross-border Banking

26
Other Proposals of the BIS

• The Commission recommends that the BIS remain a
  financial standard setter.
• Implementation of standards, and decisions to
  adopt them should be left to domestic regulators
  or legislatures.
• The Basel Committee on Bank Supervision should
  align its risk measures more closely with credit
  and market risk. Current practice encourages
  misallocation of lending.

27
Continuation of BIS Proposals

• Some streamlining of the BIS organizational
  structure would be desirable
• The Commission recommends that any expansion of
  membership in the BIS or its committees or groups
  be undertaken gradually and deliberately to avoid
  disruption of the information exchange that
  central bakers find valuable.

28
The Development Banks

• Created from the Bretton Woods system, the World
  Bank is an institution where rich industrialized
  nations gather money in markets to distribute
  funds as loans to emerging members.

• The eventual goal the Alleviation of Poverty
  Worldwide

29
Multilateral Banks

• World Bank Group, Asian Development Bank,
  Inter-American Development Bank, and African
  Development Bank
• World Bank thought that three banks could serve
  their constituencies better than a distant
  institution dominated by industrial countries.
• Served as a dominant source of international
  resources to emerging economies up until the
  1980s.

30
Problems with Development Banks

• Cold War ended, strategic gesture became outmoded
• New generation of public and private leadership
  arose in developing nations.
• Dev. Banks differ in financial size Africa is
  the smallest with 5-10 of the total amount.
• Relative importance of banks has been declining.
• In past 7 years, WB has lent 18 billion to
  LDCs, as compared to the private sectors 1,450
  billion.
• WB must accept fact that they are no longer a
  significant source of funds to emerging economies.

31
Problems continued

• Developing banks claim they lend to countries
  with denied access to market financing and
  private investorsbut, all of the banks lend
  mainly to most credit-worthy countries basically
  those that have private investors there already.
• International Bank for Reconstruction and
  Development (IBRD) lending to LDCs has fallen
  from 40 to 1 in six years.
• 70 of the WB money is loaned out to a dozen
  economies, while the remaining 30 is divided up
  by 145 developing countries.

32
Problems continued

• Crisis lending is IMF responsibility, not the
  WBs.
• Regional banks repeat the WB organizational
  structure. Recently, WB expanded its offices in
  some of the Regional bank areas only creating
  conflict, competition, and confusion.
• Their patterns of lending in past 3 years are
  very similar to the same countries and for the
  same purposes.
• WB doesnt need to pump in more money, the local
  banks and private investors can recover by
  themselves.

33
Recommendations

• Development Banks should be renamed as
  Development Agencies it would define their role
  as the alleviators of poverty world wide.
• Resource transfers to countries with a per capita
  income of years Starting at 2500, funding will be
  limited.
• Funds expended based on user fees. User fees
  consist of working projects such as vaccinated
  children, kilowatts of electricity delivered,
  cubic meters of water treated, passing literacy
  tests, miles of functioning roadsetc.

34
Recommendations continued

• If the countries show improvement in specific
  areas, the money will be granted. No results, no
  funds.
• The supplier of the service receives the money,
  not the government.
• An obligation to meet the user fees imposes the
  discipline on the country receiving assistance.
  This replaces the deferred 20-50 yr payment
  schedule.
• If grants are given instead of loans, receiver
  countries would not have to pay back the
  principal and interest.

35
Recommendations continued

• The grants may consume large quantities of money
  of the Development Agencies and they would have
  to ask member countries for more money. But this
  has a positive aspect. It forces the Dev.
  Agencies to have better performance and
  credibility to ask for more funding.
• Services would be performed by outside
  private-sector providers (NGOs and charitable
  org.) or public-sector entities, and awarded on
  competitive bid.
• Loans would be conditional upon a precise set of
  reforms, and disbursement would begin after
  institutional reforms are enacted.

36
Recommendations continued

• Regional programs should be the primary
  responsibility of their Regional Agencies Asian,
  Inter-American, and African Agencies. No overlap
  from the World Bank and its regional partners.
• WB is principal source of aid for ADB until it
  can manage on its own. WB should be the
  responsible for the Mid-East and few remaining
  European countries.
• Should concentrate on production of world goods
  such as treatment for AIDS, safeguard natural
  resources, inter-country infrastructure
  systemsetc.

37
Recommendations continued

• World Development Agency should reduce its role
  in the private-sector, only giving technical
  assistance and setting practice standards.
  Investment, guarantees, and lending to private
  sector should be eliminated.
• Multilateral Investment Guarantee Agency (MIGA)
  should be eliminated. Many countries already
  have their own political insurance agencies.
• WB and Regional Banks should write-off entirely
  their claims against all heavily indebted poor
  countries
• The United States should spend more to alleviate
  poverty.

38
The Meltzer Commission

• Chapter 5
• The World Trade Organization

39
World Trade Organization-GATT

• Formerly known as GATT, the General Agreement on
  Tariff and Trade.
• Two principle activities agreements on
  nondiscriminatory reductions in tariff duties,
  quotas and other quantitative restrictions on
  trade in goods.
• Managed dispute settlement procedures arising
  under the agreements.

40
WTO

• WTO replaced GATT January 1, 1995.
• WTO agreement incorporated and extended earlier
  GATT agreements.
• It also made two important additions

41
WTO Commission Recommendations

• Two general areas
• General Principles of operation
• The role of the WTO in promoting financial
  stability, safety, and soundness.

42
General Principles

• Two main functions
• administers the process by which trade rules
  change
• the WTO serves as a quasi-judicial body to settle
  disputes.

43
Effects of Quasi-judicial

• There is some risk that WTO rulings will override
  national legislation in areas of health, safety,
  environment, and other regulatory policies.
• The commission believes that quasi-judicial
  decisions of international organizations should
  not supplement legislative decisions.

44
More recommendations

• Rulings or decisions by the WTO under treaties or
  international agreements must remain subject to
  explicit legislative enactment by the US Congress
  or by the national legislative authority.

45

• This would limit the WTOs authority to impose
  sanctions on a country for violation of rules.
• Benefits strengthens democratic accountability
  and precludes delegation and erosion the
  legislative function.

• Instead of retaliation, countries guilty of
  illegal trade practices should pay an annual fine
  equal to the value of the damages assessed by the
  panel or provide equivalent trade liberalization.

46
Rules for financial stability

• Commission recommends rules to enhance financial
  stability.
• Such rules can reduce risk, spread best
  managerial practices, increase competition, and
  reduce the role of govt in the allocation of
  bank loans.

• Commission also recommends that explicit min.
  financial standards be phased in as a condition
  for assistance from the IMF in a financial
  crisis.
• Enforcement of the preconditions should remain
  the IMFs responsibility.

47
In the end...

• Proposals and recommendations should be the
  responsibility of the groups on banking and
  financial standards.

48
Conclusion

• The WTO has proved effective in settling disputes
  about tariffs and trade restrictions.
• It should not extend its procedures to set
  domestic policies and regulations, including
  regulation of banking services, accounting
  practices, or financial standards.

• These should remain the responsibility of
  specialized agencies.

49
International Monetary Fund

• By Dianna Bejarano

50
Beginnings

• Established at the Bretton Woods Conference after
  WWII to prevent a reoccurrence of monetary
  financial instability.
• The founders expected the IMF to make short-term
  loans to assist countries with payment deficits
  and to advise countries that failed to remove
  controls on currents accounts.

51
Some Problems

• IMF assistance postponed debt reduction.
• IMF assistance delayed renegotiation of the debt
  the resumption of capital inflows, investment
  and economic recovery.
• IMF control often undermined the sovereignty and
  democratic processes of member govts.
• IMF is deficient in providing liquidity during
  crises.

52
The Mission of the New IMF

• The commission recommends that the IMF
• ?act as a quasi-lender of last resort to
  solvent emerging economies by providing
  short-term liquidity.
• --IMF loans should have a short maturity (max
  120 days)
• --IMF loans should have a penalty rate
• --IMF would be considered a stand-by lender
• --in a crisis, the Fund should borrow
  convertible currencies
• as needed to finance short-term liquidity
  loans.

53
(Continued)

• ? collect and publish financial economic data
  from
• member countries, and
  disseminate those data in a timely
  uniform manner.
• ? provide advice (but not impose conditions)
• relating to economic policy.
• ?should uphold that if member countries
  default on their loan debs that they
  would not be eligible for help
  from other multilateral agencies or other
  member countries.

54
REFORM OF IMF, WORLD BANK

• MELTZER REPORT
• PRO AND CON IN THE PRESS

55
World Opinion on Meltzer Commission

• Fernando Lopez
• chema Monterey

56
Treasury Reply to IMF/World Bank Reform
Commission Report

• The U.S. Department of the Treasury has rejected
  core recommendations of the Congressional-appointe
  d International Financial Institution Advisory
  Commission report, saying they would so weaken
  the International Monetary Fund (IMF) and the
  multilateral development banks that these
  institutions could no longer serve vital U.S.
  interests.

57
Financial Dailyfrom THE HINDU group of
publications on indiaserver.comMonday, March 27,
2000

• Now, the Meltzer Commission has recommended a
  drastic change in the scope and size of
  operations of the Bretton Wood twins. These
  recommendations show sensitivity to policy
  failures of the IMF/IBRD, both in the South-East
  Asian crisis and in Russia. Perhaps, these
  changes, suggested by the Meltzer group, are
  inevitable. Many other experts also believed that
  the IMF was becoming too powerful for its own
  good. The suggested changes would, however,
  reduce the IMF's role to essentially a vendor of
  short-term loans. No longer can it try to cross
  over to a larger-than-life vision of taking part
  in the long-term development of the world.

58
The Meltzer ReportJ. Bradford DeLongMay 2000

• Last March the Meltzer Commission--established by
  the U.S. Congress as part and parcel of the
  legislation adding 18 billion to the U.S.'s
  capital contribution to the IMF--issued its
  Report. The press registered that the Commission
  had called for thorough-going reforms of the
  World Bank and IMF. But it quickly dropped from
  sight the Report was more than 100 pages long.
  Much of it was written in economese, that
  peculiar language that only academic economists
  speak with fluency.

59
Reshaping IMF and World Bank Meltzer Commission
ReportApril 8-14, 2000

• The report has a broad remit, extending, besides
  the IMF and the World Bank to the regional
  development banks, the Bank for International
  Settlements (BIS) and the World Trade
  Organization. But the last two are peripheral to
  the main thrust of the report. The focus of the
  report is on the IMF and the World Bank. The
  commission has tried to reassess their role in
  the new economic environment which has changed
  the conditions governing their functioning.

60
The Meltzer Commission And the G-7

• The commissions reforms will no doubt challenge
  vested interests, whether they be the internal
  bureaucracies of the institutions which would
  lose their empires or the ruling elites in the
  developing countries which in the past have
  acquired squatters rights on the funds of the
  IMF and the World Bank or the industrial
  countries which influence these international
  institutions, particularly the IMF, to provide
  slush funds to support the decisions of the G-7
  finance ministers or other groups of powerful
  members.

61
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• Three issues in the commissions report debt
  forgiveness, capital controls, and development
  policies warrant further consideration. The
  first of these involves debt forgiveness. The
  commission agrees that debt forgiveness for
  highly indebted poor countries (HIPCs) should be
  one of the first steps in reforming the global
  financial system

62
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• As for the second issue capital controls the
  commission does not seem to recognize these as
  useful public policy tools, but its
  recommendations, when examined closely, are
  contradictory. The final issue involves the
  parameters of the development debate, which the
  commission defines too narrowly. The commission
  encourages fiscal and monetary restraint and
  financial deregulation which have been shown to
  be harmful to working people and continues to
  ignore the growing criticism of increased labor
  market flexibility

63
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• Redesigning the international financial
  institutionsThe IMF and World Bank have been
  criticized for their mishandling of financial
  crises and the ineffective design and
  implementation of development projects, providing
  an impetus to reform these and other
  international financial institutions (IFIs).
  Fortunately, the issue is no longer whether, but
  how these institutions should be reformed.

64
Congressionally-appointed Panel Acknowledges
Failures of IMF and World Bank to Help the
World's Poor, But Lack of Accountability Remains
Unanswered

• WASHINGTON, DC, March 7, 2000 - A coalition of
  development and environmental advocates today
  said a new report by a Congressionally appointed
  commission is a welcome acknowledgement that the
  International Monetary Fund (IMF) and World Bank
  Group are largely failing in their mission to
  address world poverty and economic stability, and
  need major overhaul. However, the groups say that
  while the report contains some laudable
  recommendations, it fails to address other key
  fundamental problems

65
Congressionally-appointed Panel Acknowledges
Failures of IMF and World Bank to Help the
World's Poor, But Lack of Accountability Remains
Unanswered

• According to the report, written by a panel of
  economists headed by Allan Meltzer, the failures
  of the World Bank Group and IMF can be traced to
  "overlapping missions," "ineffectiveness,
  corruption, and waste of resources," and failure
  to develop successful regional programs in
  agriculture, forestry, environment, health care,
  and other sectors - among other problems. But
  while the Commission also said "lack of
  transparency and accountability" contributed to
  this failure, it did not offer any reforms to
  address this problem.

66
Meltzer report wants WTO powers reined in

• The only unanimous recommendations of the Meltzer
  Commission are those that (1) the IMF, the World
  Bank and the regional development banks write off
  in their entirety all claims against the heavily
  indebted poor countries (HIPCs), and (2) the IMF
  should restrict its lending to the provision of
  short-term liquidity and end its current practice
  of extending long-term loans for poverty
  reduction and other purposes

67
Limiting the Scope of the World Bankby James D.
Wolfensohn

• We are, of course, pleased that the issue of
  poverty reduction should be headline news. We
  share the commissions concern that more must be
  done by all the players in the fight against
  poverty, and we applaud all who broach this
  difficult subject. We also welcome the
  commissions call for debt relief, and we hope
  that funding support from Congress will follow
  it. This is crucial.
• We nevertheless believe that a number of the
  commissions proposals are based on a fundamental
  misreading of the development challenges we face
  today. Poor people in developing countries will
  be the losers if these proposals are implemented.
  If the World Bank were to withdraw entirely from
  Asia and from Latin America if it were to stop
  lending to countries with a per capita income
  above 4,000 a year, it would cut out the
  marginalized, the poorest, the excluded who live
  in these countries.

68
Commission report has IMF, WB shakingMarch 6,
2000

• US COMMISSION REPORT ON IMF, WORLD BANK REFORMS
  DUE SHORTLY. As if the IMF needed some more bad
  news, it is about to be told by a new report that
  it should engage in some serious downsizing, says
  the FT's "Observer" column (p.17). The thoughts
  of the report's chief authors are poised to come
  out on Wednesday, when a US congressional
  commission on international financial
  institutions makes its own views known. Among
  other big changes it is likely to recommend, it
  wants to make the IMF just a provider of
  emergency finance and turn the World Bank into a
  provider of grants, not loans.

69
World Opinion on Meltzer Commission

• Fernando Lopez
• chema Monterey

70
Treasury Reply to IMF/World Bank Reform
Commission Report

• The U.S. Department of the Treasury has rejected
  core recommendations of the Congressional-appointe
  d International Financial Institution Advisory
  Commission report, saying they would so weaken
  the International Monetary Fund (IMF) and the
  multilateral development banks that these
  institutions could no longer serve vital U.S.
  interests.

71
Financial Dailyfrom THE HINDU group of
publications on indiaserver.comMonday, March 27,
2000

• Now, the Meltzer Commission has recommended a
  drastic change in the scope and size of
  operations of the Bretton Woods twins. These
  recommendations show sensitivity to policy
  failures of the IMF/IBRD, both in the South-East
  Asian crisis and in Russia. Perhaps, these
  changes, suggested by the Meltzer group, are
  inevitable. Many other experts also believed that
  the IMF was becoming too powerful for its own
  good. The suggested changes would, however,
  reduce the IMF's role to essentially a vendor of
  short-term loans. No longer can it try to cross
  over to a larger-than-life vision of taking part
  in the long-term development of the world.

72
The Meltzer ReportJ. Bradford DeLongMay 2000

• Last March the Meltzer Commission--established by
  the U.S. Congress as part and parcel of the
  legislation adding 18 billion to the U.S.'s
  capital contribution to the IMF--issued its
  Report. The press registered that the Commission
  had called for thorough-going reforms of the
  World Bank and IMF. But it quickly dropped from
  sight the Report was more than 100 pages long.
  Much of it was written in economese, that
  peculiar language that only academic economists
  speak with fluency.

73
Reshaping IMF and World Bank Meltzer Commission
ReportApril 8-14, 2000

• The report has a broad remit, extending, besides
  the IMF and the World Bank to the regional
  development banks, the Bank for International
  Settlements (BIS) and the World Trade
  Organization. But the last two are peripheral to
  the main thrust of the report. The focus of the
  report is on the IMF and the World Bank. The
  commission has tried to reassess their role in
  the new economic environment which has changed
  the conditions governing their functioning.

74
The Meltzer Commission And the G-7

• The commissions reforms will no doubt challenge
  vested interests, whether they be the internal
  bureaucracies of the institutions which would
  lose their empires or the ruling elites in the
  developing countries which in the past have
  acquired squatters rights on the funds of the
  IMF and the World Bank or the industrial
  countries which influence these international
  institutions, particularly the IMF, to provide
  slush funds to support the decisions of the G-7
  finance ministers or other groups of powerful
  members.

75
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• Three issues in the commissions report debt
  forgiveness, capital controls, and development
  policies warrant further consideration. The
  first of these involves debt forgiveness. The
  commission agrees that debt forgiveness for
  highly indebted poor countries (HIPCs) should be
  one of the first steps in reforming the global
  financial system

76
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• As for the second issue capital controls the
  commission does not seem to recognize these as
  useful public policy tools, but its
  recommendations, when examined closely, are
  contradictory. The final issue involves the
  parameters of the development debate, which the
  commission defines too narrowly. The commission
  encourages fiscal and monetary restraint and
  financial deregulation which have been shown to
  be harmful to working people and continues to
  ignore the growing criticism of increased labor
  market flexibility

77
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• Redesigning the international financial
  institutionsThe IMF and World Bank have been
  criticized for their mishandling of financial
  crises and the ineffective design and
  implementation of development projects, providing
  an impetus to reform these and other
  international financial institutions (IFIs).
  Fortunately, the issue is no longer whether, but
  how these institutions should be reformed.

78
Congressionally-appointed Panel Acknowledges
Failures of IMF and World Bank to Help the
World's Poor, But Lack of Accountability Remains
Unanswered

• WASHINGTON, DC, March 7, 2000 - A coalition of
  development and environmental advocates today
  said a new report by a Congressionally appointed
  commission is a welcome acknowledgement that the
  International Monetary Fund (IMF) and World Bank
  Group are largely failing in their mission to
  address world poverty and economic stability, and
  need major overhaul. However, the groups say that
  while the report contains some laudable
  recommendations, it fails to address other key
  fundamental problems

79
Congressionally-appointed Panel Acknowledges
Failures of IMF and World Bank to Help the
World's Poor, But Lack of Accountability Remains
Unanswered

• According to the report, written by a panel of
  economists headed by Allan Meltzer, the failures
  of the World Bank Group and IMF can be traced to
  "overlapping missions," "ineffectiveness,
  corruption, and waste of resources," and failure
  to develop successful regional programs in
  agriculture, forestry, environment, health care,
  and other sectors - among other problems. But
  while the Commission also said "lack of
  transparency and accountability" contributed to
  this failure, it did not offer any reforms to
  address this problem.

80
Meltzer report wants WTO powers reined in

• The only unanimous recommendations of the Meltzer
  Commission are those that (1) the IMF, the World
  Bank and the regional development banks write off
  in their entirety all claims against the heavily
  indebted poor countries (HIPCs), and (2) the IMF
  should restrict its lending to the provision of
  short-term liquidity and end its current practice
  of extending long-term loans for poverty
  reduction and other purposes

81
Limiting the Scope of the World Bankby James D.
Wolfensohn

• We are, of course, pleased that the issue of
  poverty reduction should be headline news. We
  share the commissions concern that more must be
  done by all the players in the fight against
  poverty, and we applaud all who broach this
  difficult subject. We also welcome the
  commissions call for debt relief, and we hope
  that funding support from Congress will follow
  it. This is crucial.
• We nevertheless believe that a number of the
  commissions proposals are based on a fundamental
  misreading of the development challenges we face
  today. Poor people in developing countries will
  be the losers if these proposals are implemented.
  If the World Bank were to withdraw entirely from
  Asia and from Latin America if it were to stop
  lending to countries with a per capita income
  above 4,000 a year, it would cut out the
  marginalized, the poorest, the excluded who live
  in these countries.

82
Commission report has IMF, WB shakingMarch 6,
2000

• US COMMISSION REPORT ON IMF, WORLD BANK REFORMS
  DUE SHORTLY. As if the IMF needed some more bad
  news, it is about to be told by a new report that
  it should engage in some serious downsizing, says
  the FT's "Observer" column (p.17). The thoughts
  of the report's chief authors are poised to come
  out on Wednesday, when a US congressional
  commission on international financial
  institutions makes its own views known. Among
  other big changes it is likely to recommend, it
  wants to make the IMF just a provider of
  emergency finance and turn the World Bank into a
  provider of grants, not loans.

83
World Opinion on Meltzer Commission

• Fernando Lopez
• chema Monterey

84
Treasury Reply to IMF/World Bank Reform
Commission Report

• The U.S. Department of the Treasury has rejected
  core recommendations of the Congressional-appointe
  d International Financial Institution Advisory
  Commission report, saying they would so weaken
  the International Monetary Fund (IMF) and the
  multilateral development banks that these
  institutions could no longer serve vital U.S.
  interests.

85
Financial Dailyfrom THE HINDU group of
publications on indiaserver.comMonday, March 27,
2000

• Now, the Meltzer Commission has recommended a
  drastic change in the scope and size of
  operations of the Bretton Woods twins. These
  recommendations show sensitivity to policy
  failures of the IMF/IBRD, both in the South-East
  Asian crisis and in Russia. Perhaps, these
  changes, suggested by the Meltzer group, are
  inevitable. Many other experts also believed that
  the IMF was becoming too powerful for its own
  good. The suggested changes would, however,
  reduce the IMF's role to essentially a vendor of
  short-term loans. No longer can it try to cross
  over to a larger-than-life vision of taking part
  in the long-term development of the world.

86
The Meltzer ReportJ. Bradford DeLongMay 2000

• Last March the Meltzer Commission--established by
  the U.S. Congress as part and parcel of the
  legislation adding 18 billion to the U.S.'s
  capital contribution to the IMF--issued its
  Report. The press registered that the Commission
  had called for thorough-going reforms of the
  World Bank and IMF. But it quickly dropped from
  sight the Report was more than 100 pages long.
  Much of it was written in economese, that
  peculiar language that only academic economists
  speak with fluency.

87
Reshaping IMF and World Bank Meltzer Commission
ReportApril 8-14, 2000

• The report has a broad remit, extending, besides
  the IMF and the World Bank to the regional
  development banks, the Bank for International
  Settlements (BIS) and the World Trade
  Organization. But the last two are peripheral to
  the main thrust of the report. The focus of the
  report is on the IMF and the World Bank. The
  commission has tried to reassess their role in
  the new economic environment which has changed
  the conditions governing their functioning.

88
The Meltzer Commission And the G-7

• The commissions reforms will no doubt challenge
  vested interests, whether they be the internal
  bureaucracies of the institutions which would
  lose their empires or the ruling elites in the
  developing countries which in the past have
  acquired squatters rights on the funds of the
  IMF and the World Bank or the industrial
  countries which influence these international
  institutions, particularly the IMF, to provide
  slush funds to support the decisions of the G-7
  finance ministers or other groups of powerful
  members.

89
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• Three issues in the commissions report debt
  forgiveness, capital controls, and development
  policies warrant further consideration. The
  first of these involves debt forgiveness. The
  commission agrees that debt forgiveness for
  highly indebted poor countries (HIPCs) should be
  one of the first steps in reforming the global
  financial system

90
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• As for the second issue capital controls the
  commission does not seem to recognize these as
  useful public policy tools, but its
  recommendations, when examined closely, are
  contradictory. The final issue involves the
  parameters of the development debate, which the
  commission defines too narrowly. The commission
  encourages fiscal and monetary restraint and
  financial deregulation which have been shown to
  be harmful to working people and continues to
  ignore the growing criticism of increased labor
  market flexibility

91
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• Redesigning the international financial
  institutionsThe IMF and World Bank have been
  criticized for their mishandling of financial
  crises and the ineffective design and
  implementation of development projects, providing
  an impetus to reform these and other
  international financial institutions (IFIs).
  Fortunately, the issue is no longer whether, but
  how these institutions should be reformed.

92
Congressionally-appointed Panel Acknowledges
Failures of IMF and World Bank to Help the
World's Poor, But Lack of Accountability Remains
Unanswered

• WASHINGTON, DC, March 7, 2000 - A coalition of
  development and environmental advocates today
  said a new report by a Congressionally appointed
  commission is a welcome acknowledgement that the
  International Monetary Fund (IMF) and World Bank
  Group are largely failing in their mission to
  address world poverty and economic stability, and
  need major overhaul. However, the groups say that
  while the report contains some laudable
  recommendations, it fails to address other key
  fundamental problems

93
Congressionally-appointed Panel Acknowledges
Failures of IMF and World Bank to Help the
World's Poor, But Lack of Accountability Remains
Unanswered

• According to the report, written by a panel of
  economists headed by Allan Meltzer, the failures
  of the World Bank Group and IMF can be traced to
  "overlapping missions," "ineffectiveness,
  corruption, and waste of resources," and failure
  to develop successful regional programs in
  agriculture, forestry, environment, health care,
  and other sectors - among other problems. But
  while the Commission also said "lack of
  transparency and accountability" contributed to
  this failure, it did not offer any reforms to
  address this problem.

94
Meltzer report wants WTO powers reined in

• The only unanimous recommendations of the Meltzer
  Commission are those that (1) the IMF, the World
  Bank and the regional development banks write off
  in their entirety all claims against the heavily
  indebted poor countries (HIPCs), and (2) the IMF
  should restrict its lending to the provision of
  short-term liquidity and end its current practice
  of extending long-term loans for poverty
  reduction and other purposes

95
Limiting the Scope of the World Bankby James D.
Wolfensohn

• We are, of course, pleased that the issue of
  poverty reduction should be headline news. We
  share the commissions concern that more must be
  done by all the players in the fight against
  poverty, and we applaud all who broach this
  difficult subject. We also welcome the
  commissions call for debt relief, and we hope
  that funding support from Congress will follow
  it. This is crucial.
• We nevertheless believe that a number of the
  commissions proposals are based on a fundamental
  misreading of the development challenges we face
  today. Poor people in developing countries will
  be the losers if these proposals are implemented.
  If the World Bank were to withdraw entirely from
  Asia and from Latin America if it were to stop
  lending to countries with a per capita income
  above 4,000 a year, it would cut out the
  marginalized, the poorest, the excluded who live
  in these countries.

96
Commission report has IMF, WB shakingMarch 6,
2000

• US COMMISSION REPORT ON IMF, WORLD BANK REFORMS
  DUE SHORTLY. As if the IMF needed some more bad
  news, it is about to be told by a new report that
  it should engage in some serious downsizing, says
  the FT's "Observer" column (p.17). The thoughts
  of the report's chief authors are poised to come
  out on Wednesday, when a US congressional
  commission on international financial
  institutions makes its own views known. Among
  other big changes it is likely to recommend, it
  wants to make the IMF just a provider of
  emergency finance and turn the World Bank into a
  provider of grants, not loans.

97
Meltzer ReportPros and Cons
Dennis Stanko Keely Collins
98
Pros

• Report recognizes the pitfalls of the current IMF
  system- cause of social and environmental damage,
  IMF and World Banks inability to address world
  poverty and economic stability
• Finds correctly that the World Bank should
  restrict financial support to sectors that have a
  direct and demonstrable connection to poverty
  alleviation and sustainable development.
• Makes valid recommendations
• IMF should restrict lending to the provision of
  short-term liquidity countries in financial
  difficulties.
• Loans should only be made to countries that have
  met preconditions for financial soundness.
• World Bank should focus efforts on low-income
  countries that lack access to capital markets.

99
Cons

• Doesnt address the need to develop
  accountability and democracy in the IMF.
• Doesnt address changes in society- move from
  fixed exchange, absence of cold-war concerns.
• Doesnt specifically address how to aid the
  countries that dont qualify/
• Fails to address greater need for attention to
  the environmental and social implications through
  assessments.
• For example- it overlooks a number of important
  sectors that can help fulfill this mandate to
  benefit the social and environmental aspects such
  as investments in renewable energy, education,
  and improved urban living.

100
Sources

• www.igc.org/trac/headlines/2000
• Press Release- Friends of the Earth/Center of
  Concern. USA Congressional Panel Says IMF,
  World Bank Fail to Help Poor. March 7, 2000
• Wolf, Martin. USA Between Revolution and
  Reform-The Meltzer Commissions Vision.
  Financial Times. March 8, 2000.

101
US COMMERCIAL POLICY

• SOME KEY IDEAS
• CONCLUSIONS
• THESE COULD BE VERY INTERESTING TIMES AHEAD!

102
World Opinion on Meltzer Commission

• Fernando Lopez
• chema Monterey

103
Treasury Reply to IMF/World Bank Reform
Commission Report

• The U.S. Department of the Treasury has rejected
  core recommendations of the Congressional-appointe
  d International Financial Institution Advisory
  Commission report, saying they would so weaken
  the International Monetary Fund (IMF) and the
  multilateral development banks that these
  institutions could no longer serve vital U.S.
  interests.

104
Financial Dailyfrom THE HINDU group of
publications on indiaserver.comMonday, March 27,
2000

• Now, the Meltzer Commission has recommended a
  drastic change in the scope and size of
  operations of the Bretton Woods twins. These
  recommendations show sensitivity to policy
  failures of the IMF/IBRD, both in the South-East
  Asian crisis and in Russia. Perhaps, these
  changes, suggested by the Meltzer group, are
  inevitable. Many other experts also believed that
  the IMF was becoming too powerful for its own
  good. The suggested changes would, however,
  reduce the IMF's role to essentially a vendor of
  short-term loans. No longer can it try to cross
  over to a larger-than-life vision of taking part
  in the long-term development of the world.

105
The Meltzer ReportJ. Bradford DeLongMay 2000

• Last March the Meltzer Commission--established by
  the U.S. Congress as part and parcel of the
  legislation adding 18 billion to the U.S.'s
  capital contribution to the IMF--issued its
  Report. The press registered that the Commission
  had called for thorough-going reforms of the
  World Bank and IMF. But it quickly dropped from
  sight the Report was more than 100 pages long.
  Much of it was written in economese, that
  peculiar language that only academic economists
  speak with fluency.

106
Reshaping IMF and World Bank Meltzer Commission
ReportApril 8-14, 2000

• The report has a broad remit, extending, besides
  the IMF and the World Bank to the regional
  development banks, the Bank for International
  Settlements (BIS) and the World Trade
  Organization. But the last two are peripheral to
  the main thrust of the report. The focus of the
  report is on the IMF and the World Bank. The
  commission has tried to reassess their role in
  the new economic environment which has changed
  the conditions governing their functioning.

107
The Meltzer Commission And the G-7

• The commissions reforms will no doubt challenge
  vested interests, whether they be the internal
  bureaucracies of the institutions which would
  lose their empires or the ruling elites in the
  developing countries which in the past have
  acquired squatters rights on the funds of the
  IMF and the World Bank or the industrial
  countries which influence these international
  institutions, particularly the IMF, to provide
  slush funds to support the decisions of the G-7
  finance ministers or other groups of powerful
  members.

108
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• Three issues in the commissions report debt
  forgiveness, capital controls, and development
  policies warrant further consideration. The
  first of these involves debt forgiveness. The
  commission agrees that debt forgiveness for
  highly indebted poor countries (HIPCs) should be
  one of the first steps in reforming the global
  financial system

109
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• As for the second issue capital controls the
  commission does not seem to recognize these as
  useful public policy tools, but its
  recommendations, when examined closely, are
  contradictory. The final issue involves the
  parameters of the development debate, which the
  commission defines too narrowly. The commission
  encourages fiscal and monetary restraint and
  financial deregulation which have been shown to
  be harmful to working people and continues to
  ignore the growing criticism of increased labor
  market flexibility

110
MELTZER REPORT MISSES THE MARKCommissions
recommendations for World Bank, IMF need further
consideration

• Redesigning the international financial
  institutionsThe IMF and World Bank have been
  criticized for their mishandling of financial
  crises and the ineffective design and
  implementation of development projects, providing
  an impetus to reform these and other
  international financial institutions (IFIs).
  Fortunately, the issue is no longer whether, but
  how these institutions should be reformed.

111
Congressionally-appointed Panel Acknowledges
Failures of IMF and World Bank to Help the
World's Poor, But Lack of Accountability Remains
Unanswered

• WASHINGTON, DC, March 7, 2000 - A coalition of
  development and environmental advocates today
  said a new report by a Congressionally appointed
  commission is a welcome acknowledgement that the
  International Monetary Fund (IMF) and World Bank
  Group are largely failing in their mission to
  address world poverty and economic stability, and
  need major overhaul. However, the groups say that
  while the report contains some laudable
  recommendations, it fails to address other key
  fundamental problems

112
Congressionally-appointed Panel Acknowledges
Failures of IMF and World Bank to Help the
World's Poor, But Lack of Accountability Remains
Unanswered

• According to the report, written by a panel of
  economists headed by Allan Meltzer, the failures
  of the World Bank Group and IMF can be traced to
  "overlapping missions," "ineffectiveness,
  corruption, and waste of resources," and failure
  to develop successful regional programs in
  agriculture, forestry, environment, health care,
  and other sectors - among other problems. But
  while the Commission also said "lack of
  transparency and accountability" contributed to
  this failure, it did not offer any reforms to
  address this problem.

113
Meltzer report wants WTO powers reined in

• The only unanimous recommendations of the Meltzer
  Commission are those that (1) the IMF, the World
  Bank and the regional development banks write off
  in their entirety all claims against the heavily
  indebted poor countries (HIPCs), and (2) the IMF
  should restrict its lending to the provision of
  short-term liquidity and end its current practice
  of extending long-term loans for poverty
  reduction and other purposes

114
Limiting the Scope of the World Bankby James D.
Wolfensohn

• We are, of course, pleased that the issue of
  poverty reduction should be headline news. We
  share the commissions concern that more must be
  done by all the players in the fight against
  poverty, and we applaud all who broach this
  difficult subject. We also welcome the
  commissions call for debt relief, and we hope
  that funding support from Congress will follow
  it. This is crucial.
• We nevertheless believe that a number of the
  commissions proposals are based on a fundamental
  misreading of the development challenges we face
  today. Poor people in developing countries will
  be the losers if these proposals are implemented.
  If the World Bank were to withdraw entirely from
  Asia and from Latin America if it were to stop
  lending to countries with a per capita income
  above 4,000 a year, it would cut out the
  marginalized, the poorest, the excluded who live
  in these countries.

115
Commission report has IMF, WB shakingMarch 6,
2000

• US COMMISSION REPORT ON IMF, WORLD BANK REFORMS
  DUE SHORTLY. As if the IMF needed some more bad
  news, it is about to be told by a new report that
  it should engage in some serious downsizing, says
  the FT's "Observer" column (p.17). The thoughts
  of the report's chief authors are poised to come
  out on Wednesday, when a US congressional
  commission on international financial
  institutions makes its own views known. Among
  other big changes it is likely to recommend, it
  wants to make the IMF just a provider of
  emergency finance and turn the World Bank into a
  provider of grants, not loans.

116
Conclusions
117
Conclusions

• Meltzer Commission

118
Meltzer Commission

• Established to oversee how American funds were
  being spent by international financial
  institutions.
• Lobbied for reform within international financial
  institutions (e.g. World Bank, IMF, and WTO).
• These Reforms would enhance global financial
  stability
• Commission can monitor the world economy and
  focus on diminishing the probability of crises
  occurring.
• Created the Bank for International Settlements to
  encourage efficiency and growth in world banking.

119
Meltzer Commission

• Transparency about IMF, WB operations
• Deficiencies in IMF-WB projects
• Need to respect countries sovereignty
• Green Agenda has been partly included
• Poor PR job on part of reformers
• Media has contributed to radicalizing debate
• Foreign press supportive but pessimistic
• IMF/WB on defensive, defending its scalp

120
Meltzer Commission

• Need for WB/IMF administrative overhaul
• WTO partial overhaul
• More sensitivity to nationalism
• Sharper mission statements