By MARTIN CRUTSINGER AP Economics Writer
WASHINGTON (AP) - The Clinton administration told Congress today that the International Monetary Fund, which was heavily criticized for its handling of the Asian financial crisis, has begun to implement significant reforms.
Treasury Secretary Lawrence Summers testified before the Senate Foreign Relations Committee one day after the Clinton administration said it would not support Europe's candidate to head the IMF, Caio Koch-Weser, a top official in the German Finance Ministry.
In his testimony, Summers stressed that the administration was actively pursuing a reform agenda at the 182-nation IMF.
"As a result of the United States' urging, IMF staff are now working with outside experts to develop new tools for strengthening their safeguards against misuse of IMF funds and to support higher quality auditing and information practices in member countries," Summers said.
Summers said the Asian crisis in 1997 and 1998 highlighted the need for the IMF to pay closer attention to problems before they explode into a full-blown crisis.
"The IMF needs to focus much more attention on financial vulnerabilities such as those that played such a role in causing the crises in Asia," Summers said. "This will mean, in particular, a greater focus on the strength of national balance sheets."
Summers last December put forward a package of U.S. proposals to make broad changes in IMF operations that the administration hopes the agency will adopt as a way to meet heavy criticism in Congress about its operations. Summers sought to narrow the IMF's focus to making short-term emergency loans to countries in trouble.
"Our plans for reforming the IMF start from a single framing new reality of the global financial system today, that the private sector is the overwhelming source of capital for growth," Summers said, adding that private capital and not government money from the IMF should play the leading role in financing developing countries.
"We believe the IMF must increasingly reflect that change (to larger flows of private financing) with a great focus on promoting financial stability within countries, a stable flow of capital among them and rapid recoveries following any financial disruptions," Summers said.
Summers' appearance before Congress comes at a time when the IMF, the lead player in dealing with global financial problems, is in the midst of a major struggle over who will head the agency. The United States believes that it is critical for the IMF to have a strong leader who will be able to implement the kinds of reforms the agency needs.
The White House announced Monday that the United States will not back Europe's candidate, Koch-Wesser. In a weekend phone call, President Clinton informed German Chancellor Gerhard Schroeder that Schroeder's deputy finance minister was not acceptable to the United States, which controls 18 percent of the votes in the institution, the largest share for any country.
White House spokesman Joe Lockhart said Clinton told Schroeder he does not believe Koch-Weser meets criteria the IMF post requires: "a strong candidate of maximum stature" who would enjoy broad support from other countries.
"Our objective remains to work with Europe to find a strong European candidate who is able to command strong support, including from emerging market countries," Lockhart told reporters.
Despite the phone call, the 15-nation European Union unanimously endorsed Koch-Weser's candidacy Monday. "Koch-Weser is a strong candidate for the role, and we ... support him," said Gordon Brown, Britain's chancellor of the Exchequer.
The endorsement followed weeks of wrangling to resolve British and French reservations about the German.
The IMF said there would be another meeting of the agency's 24-member executive board on the leadership race later today and it was expected that European officials would formally nominate Koch-Wesser at that time. The IMF job, last held by Michel Camdessus of France, who retired two weeks ago, traditionally is filled by a European. American Stanley Fischer, Camdessus' deputy, is acting director until a replacement can be agreed. An American typically heads the IMF's sister institution, the World Bank.:
