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New York Times

A Study Says I.M.F.'s Hand Often Heavy. By JOSEPH KAHN. October 21, 2000.

WASHINGTON, Oct. 20 - The photo captured what Kipling might have called the financial man's burden: Michel Camdessus, head of the International Monetary Fund, towered over President Suharto of Indonesia as Mr. Suharto agreed to terms for rescuing his nation from economic oblivion.

That Indonesian bailout, and several others like it around the world during the emerging-market financial crisis of the late 1990's, was often criticized as the International Monetary Fund's equivalent of imperial overstretch. Now, a new study using the fund's own unpublished data suggests that the critique may have actually underestimated the fund's commandeering approach.

(Agence France-Presse). Former-Indonesian President Suharto signed a letter of agreement as IMF Director-General Michel Camdessus looked on in 1998. The letter spelled out major reforms and austerity measures linked to a massive bailout of the Indonesia economy.

Under heavy pressure from wealthy nations that control its policies, the fund demanded a king's ransom from Indonesia as the price for its $40 billion assistance package. Indonesia was told to raise taxes on state-owned companies; cancel 12 road, bridge and port projects; remove protections on dairy farmers; and eliminate price controls on cement - part of a long list that at one point included 140 items, the study shows.

The idea was to convert Mr. Suharto's Indonesia, which had a partly capitalist economy plagued by corruption, into an open, competitive and stable free market economy. Even though few mainstream economists argue with the goal, the methods are coming under new scrutiny.

"I think it's clear that both the scope and the depth of the fund's conditions were excessive," said Morris Goldstein, a 25- year I.M.F. veteran who did the study. Mr. Goldstein, who is now an economist at the Institute for International Economics, has often defended the I.M.F. as an important force for global financial stability. But he said that the recent push for radical overhauls of nations that borrow money has undermined the fund's reputation and strained its competence.

"They clearly strayed outside their area of expertise," Mr. Goldstein said. "If a nation is so plagued with problems that it needs to make 140 changes before it can borrow, then maybe the fund should not lend."

The dispute is a technical one, but with far-reaching implications. In the last decade, the fund, not always willingly, became the primary vehicle for rich nations to export capitalism to developing countries, including heavyweights like Russia and Brazil, as well as the former Communist states of Eastern Europe and poverty- stricken nations in Africa.

As its mission has expanded, its track record has not always kept pace. Some nations that received I.M.F. aid during the financial crisis have recovered quickly. But Russia and Indonesia are examples of high-profile lending efforts sodden with detailed instructions that have not, to date, led to sustained economic growth.

Lending programs often intrude on areas well outside the I.M.F.'s traditional mandate, Mr. Morris's study of its records suggests. Thailand was told to remove a tax on foreigners who buy condominiums. South Korea was given a blueprint for tax reform. The list of demands on Russia at one point topped even Indonesia's, with the fund overseeing 200 changes in the way the Russian government spent money, collected taxes, managed banks and regulated the oil industry.

The fear is that the I.M.F. has been acting a little like a heart surgeon who, in the middle of an operation, decides to do some work on the lungs and kidneys, too. The fund has used financial emergencies, when borrowers needed help urgently, to extract the sort of concessions that nations are often not willing to make in healthy times.

If the operations worked perfectly, few would complain. But they often do not work perfectly, Mr. Morris asserted, again citing the fund's own data. Compliance with the fund's lending conditions in Indonesia was a negligible 20 percent, he estimated. The I.M.F. has had little success raising growth rates for its African clients.

Those statistics may underlie a rethinking of the fund's approach by Horst Köhler, a former German government official who was appointed to head the I.M.F. after Mr. Camdessus retired earlier this year. After Mr. Köhler returned from visits to client nations last summer, he pronounced his aversion to some of the heavy demands made of borrowers. He said that there will be "no more Indonesias."

Treasury Secretary Lawrence H. Summers has also pushed the fund to streamline its lending programs and focus more on what many economists think of as its core mission - preventing financial crises from spreading. Mr. Summers recently won support from other board members at the fund to eliminate some kinds of lending and shorten the length of loans, changes that might wean the fund away from long-term micromanagement.

But, as Mr. Goldstein pointed out, the pressure to use the fund as a lever to bring about changes in developing nations comes primarily from the Group of 7 wealthy nations, the United States foremost among them.

The Treasury Department, which must satisfy Congressional concerns that taxpayers' money going to the I.M.F. is not squandered, insists that the fund attach many conditions to loans. It recently backed another one: making the I.M.F. a global police officer to fight money laundering.

Still, Mr. Morris's study, which is being presented to a high-level meeting of government officials and private economists in Woodstock, Vt., this weekend, may reflect a new consensus that the fund should do fewer things, and do them better. Exactly which things - Is trade reform essential? Must a nation fully open its capital markets to foreign investors? - is still up for grabs.

But the next time a leader of a nation getting I.M.F. aid affixes his signature to a lengthy contract for change, it seems unlikely that Mr. Köhler will be captured on camera hovering behind him.