Washington, 2 February 1998 (RFE/RL) -- The head of the International Monetary Fund (IMF), Michel Camdessus, is scheduled to meet privately with members of the U.S. Senate budget committee this week to talk about the role of the IMF in dealing with international financial crises and the importance of continued American participation.
Camdessus hopes to show the senators that the fund is a critically needed global institution -- the only one capable of dealing with difficult financial crisis anywhere in world.
The fund is increasing its membership quotas, or membership fees, by 45 percent to brings its capital more into line with the size of the global economy. The U.S., with 18 percent of the fund's voting power and quotas, could prevent implementation of the increase if it did not approve. Quota increases require approval of 85 percent of the voting power of the institution.
In addition to the $14.5 billion for the U.S. quota increase, the Clinton administration is urging approval of a $3, billion increase in the U.S. participation in a special emergency fund known as the New Agreements to Borrow. This is a line of credit from a group of rich nations available under extraordinary circumstances if the fund finds itself running short of money.
The U.S. has long led this special fund, but several more nations recently agreed to join and all the participants agreed to increase the overall limit of the facility.
The U.S. Congress rejected the request for the special fund participation as it ended its last session in December when the issue became entangled in anti-abortion proposals in the congress.
The American administration opened the push to get both funding measures approved by the new congress on Friday, sending the biggest financial guns available to testify before the House Banking committee.
The chairman of the U.S. Federal Reserve (Central Bank), Allan Greenspan -- who is independent from the administration -- also appeared to say that it would unthinkable to try to deal with international financial crises without the IMF.
"This burgeoning global economy has been demonstrated to be a highly efficient structure that has significantly facilitated cross-border trade in goods and services," he said, and "has made a substantial contribution to standards of living worldwide."
He said this new global economy efficiently exposes and punishes underlying economic weakness swiftly and decisively.
However, said Greenspan, this new system also "appears to have facilitated the transmission of financial disturbances far more effectively than ever before."
The Asian financial crisis shows that "we do not as yet fully understand the new system's dynamics," said Greenspan. However, he added, it is clear that it could spread around the globe. "There is a small but not negligible probability that the upset in east Asia could have unexpectedly negative effects on Japan, Latin America, and eastern and central Europe."
The federal reserve chairman also said it was incorrect that the IMF rescue programs for the affected Asian nations had left imprudent investors and bankers untouched by their errors. "Some investors have to date suffered substantial losses," said Greenspan, with worldwide equity (stock and direct investment) losses estimated to have exceeded $700 billion.
U.S. Treasury Secretary Robert Rubin, who led the administration's team, told the committee that supporting the IMF does not cost taxpayers any money because the funds the U.S. deposits earn interest whenever they are used. It's like shifting funds from one bank account to another, commented committee chairman Jim Leach (R-Iowa).
U.S. defense secretary William Cohen was the first American defense minister ever to appear before the banking committee, but he said he wanted to testify to show the that "security policy, very basically, cannot be separated from economic policy."
He said that in any region of the world, "security breeds stability, stability in turn attracts investment and investment in turn yields prosperity." Cohen said this "virtual cycle continues" so long as there is both economic and political stability. When either of those is eroded, he said, the costs can be far more than the simple economic costs.