Congress Shoves Reform Down IMF's Throat
Congress approved all $17.9 billion requested by the Clinton Administration for the IMF with no restrictions on use of those funds, as long as the Secretary of the Treasury and Chairman of the Federal Reserve first certify that the G-7 have agreed to implement the following reforms through IMF:
1) Greater Transparency: The bill requires that the following three IMF documents be made publicly available: 1) the Letter of Intent (in which the country specifies what reforms it will pursue), 2) the Policy Framework Paper (which finalizes any disputes between the IMF and loan recipient prior to disbursement), and 3) Article IV Economic Consultations (which summarize IMF analysis of the economic conditions in its member countries). None of these documents are made readily available now and will provide analysts of IMF operations the ability to quantify the specific economic policy recommendations the IMF is promoting, how it will enforce those requirements, and many more agreement specifics that the IMF rarely makes public.
2). Establish Interest Rate Floor and Reduce Repayment Window: The bill requires the IMF to adjust interest rates for risk on loans and reduces the repayment window from the 3 to 10 year standard to 1 to 2.5 years, but only for specific loans that are mainly aimed at emergency, crisis aversion loans. The language allows the IMF to continue its current subsidized interest rates for other types of loans. The is IMF required to charge 300 basis points above IMF cost of funds (the former rate of about 4.7 percent) and cannot be less than the average market rate of financing for the largest IMF members (US, UK, Japan, France, and Germany) plus 3-percent. This later point is a little uncertain because the maturity rate of financing for the "largest IMF members" is not specified.
3) Prevent subsidies to U.S competitors in Korea: American semiconductor manufacturers are aware the IMF often forces countries to lower their budget deficits by devaluing their currencies. Whatever the wisdom of this strategy, one certain effect is that the country devaluing its currency can export more cheaply, while imports are more expensive. Thus, in this case, South Korean semiconductors will become cheaper under the IMF rescue package, while U.S. semiconductors exported to South Korea will be more expensive. Moreover, much of the IMF loans in the past, have been used in South Korea to prop up industries where an over capacity exists:
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