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US blasts recommendations to curb IMF role

WASHINGTON: The U.S. administration blasted proposals on Thursday by a congressional panel to curb the International Monetary Fund's lending, warning that U.S. security could be at risk by restricting the global lender.

In his first detailed response to a controversial report issued by a congressionally appointed commission, U.S. Treasury Secretary Lawrence Summers warned that U.S. wages, savings and security could be at risk if the IMF is prevented from helping a wide range of countries.

"We find a number of the more drastic recommendations highly troubling," Summers told the House Banking Committee, which includes some of the IMF's main detractors, in his remarks on the International Financial Institution Advisory Commission's recommendations.

Summers said the panel's suggestion that the IMF decouple its loans from the tough conditionality which traditionally accompanies the cash would lead to "an irresponsible use of taxpayers' money."

The divided commission, which published its recommendations earlier this month, wants to curb the number of countries eligible for IMF cash and cut off IMF lending to the world's poorest countries. Countries would "pre-qualify" for IMF help and money would then be available without conditions.

The recommendations from the so-called Meltzer Commission would not work, Summers said, while conceding that some reforms were needed.

"We believe that taken literally they would straitjacket these institutions to the point where they would no longer be able to advance America's core values."

He added: "The combination of restrictions that the report proposes would essentially eliminate these institutions' capacity to provide support for countries as diverse as Mexico, Bulgaria and Thailand."

In times of global economic turmoil, the proposals would cripple the IMF's ability to aid failing nations. Such changes would have "rendered it ineffective during the Asian financial crisis," Summers added.

In its report, the Commission also proposed reducing the duration of IMF loans, raising the interest rates charged by the IMF and cutting off World Bank loans to those countries that can raise money in private markets.

While Summers offered strong opposition to the recommendations, key members on the House panel agreed that huge changes were needed at the IMF.

"A great many in Congress have lost confidence in the IMF. I am among those," said Representative Doug Bereuter, a Republican from Nebraska, who sponsored legislation to form the commission.

IMF CRITICISED

"The IMF needs to revise aspects of its mission and get its philosophical house in order if support for it is to be maintained in Congress," House Banking Committee Chairman James Leach said.

The Iowa Republican emphasised however, that relief for heavily indebted poor countries is a "moral imperative that should proceed in a forthright and timely manner."

Still, members on the House committee have accused the IMF of misusing U.S. taxpayer money to bankroll corrupt regimes and undermine labour rights.

Leach and other lawmakers raised concerns about the IMF's handling of its loans to Ukraine, where the government stands accused of making its foreign exchange reserves look bigger than they really were to get IMF credits.

"We are not done with the IMF's transparency and accountability problems," said Marge Roukema, a Republican lawmaker from New Jersey.

Summers said future U.S. support for Ukraine would wait for results from an audit and a decision of what controls should be put in place to prevent a repeat of what happened.

"We consider this to be a matter of especially serious concern, and the Fund has acknowledged that the handling of this matter raises important issues that it needs to address," he told lawmakers.-Reuters