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Backgrounder #1237

November 25, 1998

IMF Reform? Setting the Record Straight

Congress has been pressured by the International Monetary Fund (IMF), the Clinton Administration, and various domestic interests since January 1997 to provide the IMF with additional funds. It resisted the pressure to rubber-stamp these requests and chose instead to conduct an informative debate on many IMF-related issues before finally approving $17.9 billion in additional funds on October 23, 1998. The important issues Congress considered included the IMF's lack of transparency, the social and economic consequences of the IMF's loan conditions, and the failure of the IMF to promote economic growth and stability.

Although the IMF eventually received the $17.9 billion from the United States, the impact of the congressional debate should not be underestimated. Largely due to this debate, the focus in Congress shifted from how much money the IMF needs to whether the world needs an organization like the IMF in today's global economic environment. During 20 months of hearings on the IMF and its policies, Congress succeeded in identifying serious problems. Stories of mismanagement and ineffectiveness became public, such as the IMF's demand that Indonesia close certain banks in autumn 1997, an action that later internal IMF memorandums credit with worsening that country's economic crisis. The exposure of such problems solidified international support for reform and increased calls for halting the IMF's unchallenged lending policies and increasing transparency.

Today, most economists and political leaders acknowledge the moral hazards that IMF bailouts create by encouraging developing countries to continue the types of government intervention practices that limit economic growth instead of encouraging it. Indeed, such international leaders as Prime Minister Tony Blair of the United Kingdom now point out that the global economy is radically different from what it was in 1944, when the IMF and the World Bank were established. And they have called for an international conference to discuss what role, if any, these institutions should play in the future.

Although Congress's delay in voting on the IMF funds was long enough to allow international opinion to change, it was not successful in altering the way the IMF conducts its business in the short term. Along with approving new funds for the IMF, Congress included in the Omnibus Appropriations bill1 a number of reforms to the IMF's policy and practice. Unfortunately, these reforms will not be sufficient to solve the problems that bedevil the IMF. Moreover, the IMF's ineffectual enforcement and verification practices will serve to hinder these reform efforts.

The debate over the IMF is far from over. It is likely that the IMF will request additional funding in the near future, and the Clinton Administration can be expected to support that request. In order to fulfill Congress's reform goals, the 106th Congress must be prepared to meet such a request with a coherent legislative strategy and a fully developed reform package. In the short term, Congress should ensure that the reforms outlined in the Omnibus bill are implemented. It also should determine whether suggested reforms are sufficient to address the IMF's problems. Moreover, Congress needs to correct the failings of the Omnibus reform package, such as the lack of adequate enforcement provisions. And it should push the Administration to support a new conference on the role of organizations like the IMF in the future.

The IMF Funding Effort

Although the IMF has long engendered criticism for failing to provoke necessary reforms in the countries that receive its generous loan packages, the current dilemma came to the forefront of domestic concern in January 1997. At that time, the IMF Board of Governors approved a new credit line called the New Arrangements to Borrow (NAB).2 Under these arrangements, the United States and 24 other member countries pledged to lend funds to the IMF if "supplementary resources are needed to forestall or cope with an impairment of the international monetary system or to deal with an exceptional situation that poses a threat to the stability of that system."3 The IMF specifically cited the Mexican peso crisis as an example of a circumstance under which the NAB would be utilized.

The Clinton Administration quickly announced its support for the NAB and requested that Congress approve $3.4 billion in new IMF funding in the fiscal year (FY) 1998 budget. Congress appropriated the money, but it also included language to restrict U.S. funds for international organizations that lobby other countries to liberalize their abortion laws. The Administration refused to accept that language and vetoed the IMF funding package, ending the possibility of IMF funding in 1997.

As the Asian crisis worsened in 1997 and 1998, the IMF began to lend more money to countries in financial turmoil, such as Indonesia, South Korea, and Thailand. These massive bailouts (the IMF portion alone was over $36 billion) caused the organization's resources to dwindle rapidly. In February 1998, the IMF announced it was short of funds and demanded that its member countries provide enough money to increase its main account by 45 percent ($89 billion). The U.S. portion of this increase came to $14.5 billion. The Clinton Administration again announced its support and requested that Congress appropriate $17.9 billion for the IMF ($3.4 billion for the NAB and $14.5 billion to fulfill the members' "quota" increase) in a supplemental appropriations bill for FY 1998. The Administration cited the Asian financial crisis as justification for haste.

Originally, the Senate considered two supplemental appropriations bills: one that included international funds for arrears to both the IMF and the United Nations and one with funds for U.S. peacekeeping and domestic disaster relief. Senators Chuck Hagel (R-NE) and Mitch McConnell (R-KY) recognized that the first supplemental bill might have trouble passing and successfully attached the IMF funding to the peacekeeping and disaster relief supplemental bill. The attachment passed 84-16 on March 24, 1998.

The House of Representatives passed the peacekeeping and disaster relief in an emergency supplemental bill, but did not include funding for the IMF. The House also voted against a motion to instruct House conferees to yield to the Senate language on the IMF funding offered by Representative David Obey (D-WI), thus ending the possibility of IMF funding in a supplemental appropriations bill for FY 1998.

The Clinton Administration included the $17.9 billion for IMF funding in its FY 1999 budget request presented to Congress on February 2, 1998. With the defeat of IMF funding through a supplemental appropriations bill, supporters of the IMF funding had no choice but to seek funds through the normal appropriations process.

IMF Reforms in the 1999 Omnibus Appropriations Bill

Because the House did not approve IMF funding before leaving for the August recess, it became clear that IMF funding would become a bargaining chip with the White House in the appropriations negotiations at the end of the session. Eager to focus on the upcoming elections, congressional negotiators accepted language calling for much weaker IMF reforms than those sought by many Members of Congress.

On October 20, 1998, Congress passed the 1999 Omnibus Appropriations bill with $17.9 billion in funds for the IMF. These funds will become available 15 days after the Secretary of the U.S. Treasury and the Chairman of the Federal Reserve Board certify that the Group of 7 (G-7) major industrial democracies4 have agreed to urge the IMF to support three specific reforms:

  1. IMF loan conditionality
    The IMF must require borrowers to eliminate government subsidies and directed lending, reduce restrictions on trade, and enact bankruptcy laws that "treat foreigners fairly."

  2. IMF transparency
    The IMF must release to the public edited summaries of three IMF documents--the Letter of Intent, the Policy Framework Paper, and Article IV Economic Consultations--and the meetings at which these documents are discussed within three months of the completion of each document or the conclusion of the meeting.5

  3. A minimum IMF interest rate and a reduced repayment schedule on some IMF loans
    IMF loans extended to countries that experience difficulty in making their balance of payments because of a loss of market confidence would carry a higher interest rate and a requirement to be repaid more quickly than other IMF loans. Specifically, the IMF is required to charge an interest rate that is at least 3 percent above its cost of funds and not less than the average market rate of financing for its largest members (France, Germany, Japan, the United Kingdom, and the United States) plus 3 percent. The loans must also be repaid at the end of one to two-and-a-half years from the disbursement of each tranche.

In addition, the Omnibus bill outlines a number of actions that must be taken by the Secretary of the Treasury and the U.S. Executive Director at the IMF prior to funding, such as:

  • Preventing subsidies from going to U.S competitors in South Korea. The Secretary of the Treasury must certify that no IMF money is being used to aid South Korean industries that compete with U.S. industries.

  • Advocating 33 additional specific policies. The Secretary of the Treasury must instruct the U.S. IMF Executive Director to "vigorously promote" through voice and vote 33 specific policies that range from supporting trade liberalization to encouraging borrowers to establish a social safety net. The language expands an existing list of legislated instructions that the U.S. Executive Director must advocate in IMF discussions and votes.

  • Establishing an 11-person International Financial Institution Advisory Commission to study the international financial system and the appropriate role for international financial institutions, which would report to Congress six months after it is established.6

  • Facilitating access to IMF materials for an annual audit by the U.S. General Accounting Office (GAO). The Secretary of the Treasury must certify that the U.S. Executive Director at the IMF is instructed to "facilitate timely access by the [GAO] to information and documents of the [IMF] needed by the Office to perform financial reviews of the [IMF]."7 Starting on June 30, 1999, the GAO is required to incorporate this information in an annual report on (1) the IMF's current financial condition; (2) an amount, disbursement schedule, repayment schedule, and interest charge for all loans approved in the preceding year; (3) the trade policies of borrowers, especially policies that negatively impact U.S. exports to that borrower; (4) the export policies of borrowers, such as those that result in greater exports to the United States or that adversely affect American businesses, farmers, or communities; (5) any IMF conditions not met by the borrower, the reasons they were not met, and the actions taken by the IMF, if any, in response; (6) the loans in which the disbursement schedule, repayment schedule, or conditions of the loan were renegotiated, and the reasons behind it; and (7) the cumulative total of loans since the IMF's inception through the current year, the number of loans in default, and the amount of outstanding loans.

Shortcomings of the IMF Reforms

Although the outcome of the congressional debate produced new requirements that the IMF alter the way it conducts business, the product of these measures will fall far short of significant long-term reform. The very fact that the Secretary of the Treasury and the Chairman of the Federal Reserve Board were able to meet the requirements necessary to release the IMF funds less than two weeks after Congress passed the appropriations legislation is testament to the requirements' weakness.8 The Omnibus reform package suffers from many shortcomings, such as:

  • Insufficient enforcement mechanisms. The IMF language in the Omnibus bill does not require concrete actions or reform on the part of the IMF. It merely requires certification that the IMF's "major shareholders" 9 agree to use their influence to push specific reforms or that the Secretary of the Treasury has instructed the U.S. Executive Director to support congressional reforms. A rhetorical commitment to pursue reform is a small sacrifice in exchange for receiving $17.9 billion in additional money. Moreover, certification is a one-shot deal. Unlike certification legislation contained in other IMF reform bills, the Omnibus language offers Congress no opportunity to analyze progress through annual certification requirements. Once Congress accepts the certification, the IMF funds are released--and the organization and G-7 can ignore Congress's demands.

  • Limited transparency requirements. If the G-7 countries are successful in imposing transparency requirements, these provisions would require the IMF to release written summaries of its Letters of Intent, Policy Framework Papers, and the Economic Reviews and meetings at which they are discussed. Although these provisions are an improvement in that the IMF currently is not required to release any information, they will not make the IMF or its operations transparent. Written summaries of meetings are no substitute for full transcripts or for the mandatory release of documents discussed. Moreover, the IMF and countries are allowed to edit the summaries to delete any "sensitive" information, including information that involves national security, proprietary information, and information deemed "market-sensitive."

A proper and effective transparency requirement would require public release of all IMF documents, internal memos, and meeting transcripts with no redacted information. The excuse that countries seeking IMF aid should be shielded somehow from public scrutiny of their economies is absurd. If countries are eager to receive IMF aid, the donors and underwriters of that aid (that is, U.S. taxpayers) should be able to obtain information about their economies. Any country that is unwilling to make such information public should not receive IMF aid.

  • Interest rates on loans that do not reflect market rates, and a lengthy repayment period. Unfortunately, the interest rate reform provision is unlikely to alleviate the destructive impact of IMF subsidized loans. First, it applies only to a select number of loans, and essentially allows the IMF to continue its current subsidized interest rates for every loan outside the bill's narrow definition.

Second, to fulfill its requirement, the IMF would not necessarily need to change existing practices. A current IMF loan facility--the Supplemental Reserve Facility (SRF)--would meet and even exceed the requirements laid out in the bill. The SRF was created "for member countries experiencing exceptional balance of payments problems owing to a large short-term financing need resulting from a sudden and disruptive loss of market confidence reflected in pressure on the capital account and the member's reserves," almost exactly the wording in the Omnibus bill. SRF loans have a much shorter repayment window (one to one-and-a-half years from the date of each purchase) than do other IMF loans and charge an interest rate that is 3 percent to 5 percent above the normal IMF loan rate.

Third, although the interest rate is higher than before, it still is highly subsidized. Instead of paying 0.5 percent to 4.7 percent interest on IMF loans, the bill reform would result in interest rates between 5 percent and 9 percent on selected loans. Many of the countries likely to receive these loans, however, such as Russia, had to pay between 50 percent and 200 percent on government bonds in order to attract private buyers. Thus, even though IMF interest rates on certain loans will be higher than before, they will remain much lower than market-determined rates.

Finally, the decreased repayment period is likely to have little effect because of the IMF's propensity to roll over debt. In the past, it renegotiated loans to extend the repayment periods, and it is under no pressure to end this practice.10

  • Ineffective instructions for the U.S. Executive Director to the IMF. For two decades, Congress has attempted to implement reforms in the IMF by using the "voice and vote" of the U.S. Executive Director to the IMF. Congress has passed over 30 different requirements on IMF activities, IMF reforms, and instructions to the U.S. Executive Director on how to use his "voice and vote"--which were signed, too, by the President--with little or no change in IMF policy.11 The problem is not a paucity of instruction; it is the lack of enforcement. Past reform legislation lacked meaningful enforcement measures or specified the consequences of ignoring the legislation. The Omnibus bill continues this trend of passing new "voice-and-vote" requirements without the means to ensure that the IMF implements them.

The GAO study required by the Omnibus bill would be particularly useful in determining the efficacy of IMF assistance. It would reveal information on IMF activities that the IMF has been hesitant to release in the past. But this requirement also lacks an enforcement mechanism to ensure compliance.

Other requirements, from creating an International Financial Institution Advisory Commission to examining the effects of globalization, trade, and capital flows on financial institutions, as well as the role these institutions play in contemporary economics, may prove useful. But they do not address the immediate problems of the IMF and its negative impact on the global economy. 12 Congress should be commended for its forethought in establishing these potentially useful instruments, but they are not a replacement for much-needed reform.

What's Next?

In 1996, when asked how much of a funding increase the IMF would seek in the Eleventh General Review of Quotas, Managing Director Michel Camdessus replied, "At least something between 50 and 100 percent."13 Because of political concerns, however, the IMF requested only a 45 percent increase. Camdessus indicated then that the IMF felt its liquidity ratio (the amount of uncommitted, useable IMF resources available in relation to liquid liabilities) should be at least 70 to 80 percent. The IMF justified its demands for the last quota increase because its liquidity ratio had fallen to about 34 percent.14

If all IMF members provided funding for the NAB and the quota increase at the same time as the United States, the IMF's liquidity ratio would have been 98 percent. The IMF, however, has been disbursing rapidly the additional funds Congress approved: It contributed $18 billion to the $41 billion bailout of Brazil and approved $210 million in loans to Bangladesh, the Dominican Republic, and Sierra Leone.15 As a result, the IMF's liquidity ratio is just over 80 percent and falling.

The dismal financial prospects of many countries around the world, coupled with the IMF's practice of acting as a lender of first resort, suggests that IMF lending practices will continue for the foreseeable future. As the IMF's liquidity ratio worsens, it is likely to seek an increase in members' quotas to the amount Camdessus originally envisioned, along with a request for additional funding in the near future of at least the amount just approved by Congress. Clearly, before those requests are made, members of the 106th Congress can look at the lessons learned from the endeavors of the 105th Congress to develop an agenda and strategy for the future.

Framing Future IMF Debates

Although many former U.S. officials, economists, and policymakers are on record as stating that the IMF should be eliminated eventually,16 a national and international consensus to do so has not yet materialized. Before the Clinton Administration and the IMF make additional requests for funds, Congress should analyze the debate over the past two years and understand that:

  • A reactionary strategy is ineffective. Throughout the debate provoked by past IMF requests for funding, the opponents of new funding found themselves reacting to the statements and activities of IMF supporters. Although this strategy delayed IMF funding for over a year, revealed many harmful IMF practices, and succeeded in getting some flawed and incomplete reforms passed, it proved largely ineffective. The failure to rally disparate allies around common concerns to counter the claims of funding proponents undermined the efforts of opponents. This strategy, too, proved largely ineffective. Those who seek IMF reform should cooperate, coordinating their efforts in preparation for the likelihood that the IMF will request additional funds in the near future.

  • "Voice-and-vote" instructions are ineffective. For more than two decades, Congress has instructed the U.S. Executive Director at the IMF to use the "voice and vote" of the United States to support over 30 specific policies, ranging from human rights to free trade. This strategy has had little effect on IMF activities because votes rarely occur and because there are no consequences for IMF inaction on those issues.17 The Omnibus bill extends the "voice-and-vote" strategy by asking U.S. officials to certify that the G-7 countries use their voice and vote to support the United States on three specific policy changes. But Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States collectively control fewer than 45 percent of the voting stock within the IMF. Approving an IMF loan requires a majority of the voting stock, and amending the IMF Articles of Agreement requires 85 percent of the voting stock and the approval of at least 60 percent of IMF member countries. Thus, the 55 percent of the voting stock controlled by the other countries (who also are the largest beneficiaries of IMF aid) can be mustered to block U.S.-led reforms--even when the seven largest contributors to the IMF actively support those reforms.

  • U.S. contributions to the IMF should be used as leverage to force changes in harmful IMF policies and actions. Policymakers err in their belief that Congress can change the operations and management of the IMF directly, as if it were a U.S. agency or department. Congress can dictate how the U.S. Agency for International Development is managed, is organized, and operates because U.S. law binds it. U.S. law does not bind international organizations like the IMF, however. The most effective means for Congress to achieve substantial change in IMF policy is to use its "power of the purse," withholding IMF funding until the organization provides evidence that it has altered its policies and is in compliance with congressional demands.

  • IMF funding should not be tied to domestic economic benefits. Lobbyists representing U.S. agricultural and manufacturing exporters and the U.S. financial industry have used scare tactics to convince many Members of Congress that IMF funding is necessary to save their industries from the effects of the economic crisis. The IMF, they reason, could help to revive faltering overseas economies and negate the ill effects of the crisis by providing indirect subsidies through its assistance. In other words, IMF funds would allow countries to pay their debts to U.S. financial institutions and enable them to continue buying U.S. products. IMF opponents did little to fight these claims. In the future, opponents of additional IMF funding must put forth the ample evidence that IMF lending (1) may cause an economic crisis to occur; (2) often makes existing crises worse; (3) makes U.S. exports more expensive due to IMF conditionality, which frequently requires recipient countries to devalue their currencies; and (4) prevents countries from achieving long-term economic reform.18

What Congress Should Do

The conditions Congress passed in the Omnibus appropriations bill are not only desirable; they also are better than any previously required IMF reforms. But they fall substantially short of the actions needed to prevent damage to the global economy caused by IMF meddling. It would be a mistake for Members of Congress to conclude that their work is done and that they have addressed IMF reform sufficiently. Instead, policymakers during the near term should build on the measures in the Omnibus bill and establish short-, medium-, and long-term goals.

In the short term, Congress should ensure that the reforms outlined in the Omnibus bill are implemented. The Chairman of the Federal Reserve Board and the Secretary of the Treasury already have submitted the certifications necessary to release the IMF funds, and the funds could have been available to the IMF as early as November 19, 1998.19 Congress should not accept these certifications at face value; it should monitor the IMF and demand that the Secretary of the Treasury and the Chairman of the Federal Reserve Board provide regular updates on the progress of the reforms. It also should hold hearings and conduct further studies to determine if any reforms implemented by the IMF meet Congress's demands and address the problems it has identified, such as the need for transparency and the moral hazard of the IMF's lending practices.

In the intermediate term, Congress should correct the failings of the Omnibus reform package through future appropriations for the IMF or by restricting transfers of currently appropriated funds from the U.S. Treasury to the IMF. Congress should seek reforms that
specifically address:

  • Enforcement. Congress must create effective enforcement mechanisms in order to ensure that the IMF implements the legislated reforms. Congress should demand that reforms be implemented before additional funds are distributed, and it should require annual confirmation that the required reforms have been implemented to maintain the IMF's access to previously appropriated funding.As noted by Majority Leader Richard Armey (R-TX),

No IMF reform is real IMF reform unless the IMF adopts it before it receives any additional money from the US. This, in my judgment, is plain common sense. We don't give away $18 billion of our taxpayers' money on the strength of promises or assurances.20

  • Interest rates. The current language requires the U.S. Executive Director to support, at a minimum, interest rates that are 3 percent above the IMF's cost of funds and not less than the average market rate of financing for the largest IMF members, plus 3 percent on certain IMF loans. Currently, this would require a minimum interest rate of 6.74 percent.21 This is greater than typical interest rates (of 4.7 percent), but far less than market rates. For example, Indonesia and Russia had to offer interest rates of between 50 percent and 200 percent during their respective crises. If the object is to eliminate the moral hazard of access to cheap IMF loans, then IMF interest rates should mirror rates in the private sector. If a country is unable to secure private funds at any rate, the IMF rate should be as punitive as possible--not lower than the interest rate on most credit cards.

  • IMF loan coverage. The Omnibus bill requires the G-7 to support increased interest rates and shorter repayment periods for IMF loans extended to countries "experiencing balance of payments difficulties due to a large short-term financing need resulting from a sudden and disruptive loss of market confidence."22 This description would apply to most recent IMF bailouts, but it would not apply to most of the loans the IMF negotiates. For example, the IMF negotiated 26 Stand-by, Extended Fund Facility, and Enhanced Structural Adjustment Facility loans between October 19, 1997, and October 19, 1998.23 Only one of these loans, a $6.6 billion (which is 36 percent of all arrangements made that year) Stand-by arrangement to Indonesia, would have been subject to the reforms outlined in the Omnibus bill. In order to be truly effective, reform requirements should apply to all IMF loans.

  • Transparency. The Omnibus bill requires the IMF to release written summaries of only three IMF documents and summarized minutes of meetings in which the documents are discussed. Moreover, IMF and member countries can censor those documents beforehand. Written summaries of meetings are no substitute for full transcripts or the mandatory public release of the documents. A proper and effective transparency requirement would require public release of all IMF documents, internal memos, and meeting transcripts with no redacted information.

Over the long term, Congress should press the Clinton Administration to bring a new Bretton Woods-type conference together. The IMF and the World Bank were established during negotiations at Bretton Woods in 1944, but the world economy has changed dramatically since that time, making Bretton Woods-designed organizations badly out of date. It is time to hold a new discussion on the role of these organizations, if any, in the modern global economy. Such negotiations must be conducted with an open mind, however, and those institutions that are deemed harmful or unnecessary should be dismantled. In a sense of Congress resolution, policymakers should express their support for a new Bretton Woods conference.

Both the IMF and the World Bank have indicated they will request additional money from their member states in the near future. Congress should refuse to provide additional funds to these organizations before the conclusion of a second Bretton Woods-type conference. Giving additional funds before a consensus is reached on the role of these institutions, if any, only reinforces activities that Congress may wish to end; at worst, it would provide billions of taxpayer dollars to organizations that harm developing countries and the global economy.

Conclusion

With passage of the IMF reform language in the Omnibus Appropriations bill, Members of Congress must not err in their belief that they have won the IMF debate or that the issue is resolved. The reforms included in the bill are the first step in a process that should end with the elimination of the IMF as it exists today. To accomplish this, Congress should implement current IMF reforms, strengthen these reforms, and ultimately establish a framework in which the IMF eventually can be abolished.

-- Bryan T. Johnson is a former Policy Analyst for International Economic Affairs in The Kathryn and Shelby Cullom Davis International Studies Center at The Heritage Foundation. Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs at The Heritage Foundation.

Endnotes

1. Making Omnibus Consolidated and Emergency Supplemental Appropriations for Fiscal Year 1999, P.L. 105-277, signed into law October 21, 1998.

2. The NAB incorporates the previous General Arrangements to Borrow (GAB) and effectively doubles the amount of emergency credit the IMF has available. The total amount of credit available under the NAB in Special Drawing Rights (SDRs)--the IMF's internal accounting measure--would be SDR 34 billion, or approximately $46 billion, of which the United States contributes over $9 billion. Only an additional $3.4 billion was necessary to fulfill NAB obligations after previous approval of funds for the GAB.

3. Other countries are Australia, Austria, Belgium, Belgium, Canada, Finland, France, Germany, Hong Kong, Italy, Japan, Kuwait, Luxembourg, Malaysia, the Netherlands, Norway, Saudi Arabia, Singapore, South Korea, Spain, Sweden, Switzerland, Thailand, and the United Kingdom. See http://www.imf.org/external/np/exr/facts/nab.htm.  

4. The G-7 countries are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.

5. The Letter of Intent is a document describing the "policies that a country intends to implement in the context of its request for financial support from the IMF." The Policy Framework Paper is drafted by the country, the IMF, and the World Bank, and describes the "economic objectives, macroeconomic and structural policies for three-year adjustment programs supported by ESAF resources, as well as associated external financing needs and major sources of financing." Article IV Economic Consultations are held between the IMF and every member country in accordance with the IMF Articles of Agreement. The consultation is a report analyzing the country's monetary, fiscal, and structural policies in the context of the likely economic challenges facing the country in the near future. See http://www.imf.org/external/np/loi/mempuba.htm.  

6. The commission is empowered to hold meetings and hearings, disseminate information, and report its conclusions to the Secretary of the Treasury and appropriate legislative committees. The members of the commission are chosen by the Speaker of the House (three members), the Senate Majority Leader (three members), and the minority leaders of the House and Senate (who together appoint five members).

7. P.L. 105-277.

8. Michael M. Phillips, "Treasury, Fed Clear Away Final Hurdle to $17.9 Billion of U.S. Funds for IMF," The Wall Street Journal, November 4, 1998, p. A14.

9. Presumably, the "major shareholders" are the G-7, but the ambiguity is problematic because it could allow the certification to apply to just the United States and Japan, the two largest contributors to the IMF.

10. See Bryan T. Johnson and Brett D. Schaefer, "The International Monetary Fund: Outdated, Ineffective, and Unnecessary," Heritage Foundation Backgrounder No. 1113, May 6, 1997, p. 6.

11. Edwin J. Feulner, Jr., Ph.D., "The IMF Needs Real Reforms, Not More Money," Heritage Foundation Backgrounder No. 1175, May 5, 1998.

12. Historically, the IMF, through its actions and policies, has been more likely to cause and aggravate financial crises than to solve them by encouraging dependence on IMF assistance and discouraging the very reforms necessary to avoid crises or recover from them once they occur. Evidence indicates that past IMF actions promote political instability and disproportionately harm the poor in recipient countries. For a more detailed discussion, see Johnson and Schaefer, "The International Monetary Fund: Outdated, Ineffective, and Unnecessary."

13. Press Conference by Michel Camdessus, Managing Director, International Monetary Fund, Washington, D.C., September 26, 1996, at http://www.imf.org/external/np/tr/1998/TR981113.htm.  

14. The ratio was for October 1998--after the bailout package for Russia but before the package for Brazil or congressional approval of additional funding for the IMF. See http://www.imf.org/external/np/trc/liquid/index.htm.  

15. IMF Press Release List 1998 at http://www.imf.org/cgi-shl and "Press Conference on Brazil," by Michel Camdessus, Managing Director, and Stanley Fischer, First Deputy Managing Director, International Monetary Fund, November 13, 1998, Washington, D.C., at http://www.imf.org/external/np/tr/1998/tr981113.htm.  

16. For example, former Secretary of State George Shultz, former Secretary of the Treasury William Simon, and former Chairman of Citicorp/Citibank Walter Wriston recently called for the abolition of the IMF in "Who Needs the IMF?" The Wall Street Journal, February 3, 1998, p. A22. Former Secretary of Housing and Urban Development Jack Kemp, in a letter to House Majority Leader Richard K. Armey (R-TX) on April 10, 1998, and Nobel laureate Milton Friedman in "Markets to the Rescue," The Wall Street Journal, October 22, 1998, p. A22, also urged Congress not to provide additional money to the IMF.

17. The United States, which controls the largest bloc of votes in the IMF (17.78 percent), can block only actions that require an 85 percent majority, such as the expansion of the quota subscriptions and amendments to the IMF Articles of Agreement. It cannot prevent the IMF from extending financial assistance, which, under normal circumstances, requires a simple majority of votes unless it has garnered the support of an additional 33 percent of the votes. This means the IMF can extend loans over the objection and negative vote of the United States. Moreover, many important items are not voted on at all. According to Karin Lissakers, the U.S. Executive Director at the IMF, the IMF voted on only about a dozen of over 2,000 major decisions during her nearly five years of service. See Testimony of Karin Lissakers, U.S. Executive Director at the IMF, Hearing on the International Monetary Fund (IMF) Before the General Oversight Subcommittee of the Banking and Financial Services Committee, U.S. House of Representatives, 105th Cong., 2nd Sess., April 21, 1998.

18. There are numerous studies by The Heritage Foundation on the subject. See, for example, Feulner, "The IMF Needs Real Reforms, Not More Money"; and Bryan T. Johnson and Brett D. Schaefer, "Congress Should Give No More Funds to the IMF," Heritage Foundation Backgrounder No. 1157, February 12, 1998, "No New Funding for the IMF," Backgrounder Update No. 287, September 23, 1997, and "The International Monetary Fund: Outdated, Ineffective, and Unnecessary." Many organizations produced laudable studies, including "IMF Financing: A Review of the Issues," Joint Economic Committee, U.S. House of Representatives, at http://www.house.gov/jec/imf/imf.htm;   Lawrence B. Lindsey, "The Benefits of Bankruptcy," The Weekly Standard, January 12, 1998, pp. 24-28; and Charles W. Calomiris, "The IMF's Imprudent Role as Lender of Last Resort," Cato Journal, Winter 1998, pp. 275-294.

19. The Secretary of the Treasury and the Chairman of the Federal Reserve Board submitted certification on November 4, 1998. The language of the bill says that funds are available 15 days after certification. This means the funds could have been available on November 19--or much later if the language means 15 legislative days.

20. Remarks by House Majority Leader Dick Armey on the Floor of the House of Representatives, October 2, 1998.

21. The Rate of Charge for the SDR was 3.68 percent during the week of October 19, 1998; see http://www.imf.org/external/np/tre/sdr/rates/fy99q2.htm.   The average cost of funds (based on 10-year government bond yields) for France, Germany, Japan, the United Kingdom, and the United States was 3.74 percent, based on data in the Economist, October 24-30, 1998, p. 115.

22. P.L. 105-277.

23. International Monetary Fund, IMF Survey, Vol. 27, No. 19 (October 19, 1998), p. 313.

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