The New York Times / By JOSEPH KAHN
WASHINGTON -- The Group of 7 wealthy nations agreed today on proposals for change at the International Monetary Fund that would discourage nations from borrowing too often from the fund and encourage them to pay back their loans quickly.
The proposals -- put forward by the United States and given the stamp of approval at a meeting today of finance ministers from France, Britain, Canada, Germany, Japan, Italy and the United States -- go part way to address the concerns of some critics of the fund, including members of Congress.
Lawmakers, academics and some private interest groups have urged the fund to phase out long-term lending in favor of short-term emergency loans, which was the fund's original mandate when it was founded just after World War II.
Protesters have gathered in Washington this weekend to demonstrate against the fund and the World Bank, its sister institution. Some protesters have urged that the fund focus exclusively on crisis-management, not long-term advisory and lending programs.
Treasury Secretary Lawrence H. Summers put forward a plan for streamlining the fund late last year, and has been lobbying European nations and Japan to back his proposals. Together, Europe, Japan and the United States control a majority of the votes on the fund's board, so their endorsement makes it likely that the fund will institute changes to its lending programs.
The G-7 nations agreed that the fund should explore the use of graduated interest rates on its major loan programs. Borrowing nations would be charged variable interest rates that fluctuate depending on how often they turn to the I.M.F. for help, how much they borrow, and how long it takes to pay back the loans. Those nations that borrow the least money the least often and for the shortest terms would get the lowest rates.
The fund already uses graduated interest rates on some lending programs. But many poor and middle-income nations borrow from the fund for long durations at concessional interest rates -- and return repeatedly for more help when the money runs out -- as part of what the fund refers to as structural adjustment lending. They often do so without seeing interest rates rise based on the quantity, duration or frequency of their borrowing.
"We agreed to put priority on the creation of a streamlined, incentive-based structure for I.M.F. lending," Mr. Summers said after the meeting of G-7 finance ministers tonight. Though the move by the ministers might reduce some long-term borrowing by I.M.F. client nations, it seems unlikely to satisfy many of the critics of the fund's long-term loan programs. Some critics have called on the fund to completely eliminate such lending, arguing that it is ineffective and that the I.M.F. uses long-term loans to interfere in the domestic policies of borrowing nations.
Finance ministers, who often discuss currency values at their conclaves, also focused this time on the stock market plunge in the United States and the potential impact on the world economy. All major Wall Street market indices declined sharply on Friday, ending a week of bloodletting that seemed to confirm European finger-waving about the American stock market bubble. Though the rout, if it continues, would almost certainly reduce economic growth abroad as well as in the United States, there is a silver lining. If the decline reduces consumer demand in this country, that might help even out growth between the United States and its major trading partners. Lopsided growth has been a preoccuption of finance ministers because it shows up in the giant United States trade deficit, which many fear has become unsustainably large.
Mr. Summers said that there was agreement at the meeting that economic fundamentals remain strong in all the G-7 countries, despite the volatility in equity markets. But he also emphasized that mismatched growth rates between the United States and its peers remain a pressing concern. "If you compare the discussion today with the discussion of only six months ago, there was much more general agreement on the importance of policies to allow rebalancing of global growth," Mr. Summers said. He added that the adjustment should take place by raising growth in Europe in Japan rather than by lowering growth in the United States.:
