The Canadian government is preparing for an overhaul of the World Bank and the International Monetary Fund, an issue expected to top the agenda when the G-7 meet in Halifax in June.
Prime Minister Jean Chretien is due in Washington Thursday for lunch with Michael Camdessus, managing director of the International Monetary Fund. And Friday, a parliamentary committee wrapped up a two-day visit to Washington to collect material for a report on reforms to the two institutions.
Of the G-7 countries, Canada is the most generous donor to multilateral development banks, but like most is cutting back.
Bill Graham, a Liberal MP from Rosedale who chaired the parliamentary committee, said none of the G-7 members dispute the need for an overhaul.
John English, another Liberal committee member, said Halifax may serve as a ''down payment'' on the changes that need to be made.
''They have to exist, or something very much like them, but I think there's pretty wide agreement it can't be in the form they are now,'' he said.
Both institutions celebrated their 50th anniversary last year, and look increasingly out of date. Since they were created after the Second World War, the bank has evolved into a sort of global aid agency, while the IMF acts as a international lender of last resort.
Of the two, the World Bank comes in for most criticism, but the IMF is probably in more immediate need of reform. Pressure for change has increased sharply since the Mexican peso crisis raised new questions about its capabilities.
Senior fund officials acknowledge they managed to deal with the Mexican debacle, but only just. Whether they could repeat the process, they say, is an open question.
Karin Lissakers, U.S. executive director of the IMF, said the Mexican experience spotlighted several weaknesses.
Unlike its debt crisis in the 1980s, when Mexico found itself unable to repay a club of foreign banks, this time the creditors were a vast army of anonymous international investors.
Then the lenders could all be called together to discuss the problem. This time they couldn't even be identified, much less called to a meeting.
The fund discovered its usual approach to surveillance ''did not work as it should have'' in Mexico, said Lissakers. It still isn't sure why, although timing may have something to do with it.
In many countries, the fund takes a close look at developments only once a year. In Mexico, ''a lot of things happened between February and July . . .the fund really wasn't on top of,'' she said.
The IMF has found it lacks leverage in countries that aren't deeply in its debt. If a country practices dubious economics but can attract private capital, there's a limit to what it can say.
It could pass on its concerns to the market, but might only create a crisis rather than averting one.
Mexico also illustrated the problem of blurred definitions, said Lissakers. One of the country's biggest difficulties was its heavy obligation in short-term loans known as ''tesobonos,'' which were payable in pesos but indexed to the US$.
Though they acted as a ''proxy'' for dollar debts, ''tesobonos did not show up in any standard IMF data on external debt obligations,'' said Lissakers, a situation that turned into a ''boobie trap'' for the fund.
While the IMF struggles with Mexico's aftermath, the World Bank has a different set of problems.
It must maintain its traditional support for low-income countries far from ready for the shift toward open market economies. But as the shift accelerates, there is a growing group of countries part way to market economies, which need a different kind of help.
Odds are the second group will grow, while the first gets smaller, said Richard Richardson, co-author of a Canada-backed report analysing the bank's future. If the bank doesn't adjust, he said, it will become ''increasingly irrelevent.''
''There's no use having an institution that's been around 50 years and the world doesn't need what it does any more,'' said Richardson.
He said the bank is caught in a curious web. Often, the people who must make the changes are the ones who need to be changed, and many think they've introduced quite enough reform already.
He said the bank lacks the experience it needs in the private sector, and has been slow to take advantage of the opportunities it has had.
In particular there has been only limited success in reducing the ''traditional hostility'' between the bank and its main private-sector lending arm, the International Finance Corporation.
Richardson, who worked at the IFC for more than a decade, said it too needs to change. Since it was created in 1956 with a mandate to promote private enterprise, it ''has been most successful in the handful of countries where it is hardly needed, and least successful where it is needed most.''
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Revised: June 3, 1995
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