I am pleased to welcome the prominent economic experts testifying before the Committee this morning. The combined experience and knowledge of these witnesses ensure a very serious discussion of the policy issues related to the International Monetary Fund (IMF). George Shultz, William Niskanen, Paul Volcker, and Lawrence Lindsey have been involved in some of the most important economic policy decisions made during the past three decades, and we appreciate their appearance before the Joint Economic Committee (JEC) today.
During the past 8 months, the JEC has been analyzing the IMF and its operations, practices and procedures. This research has identified several key economic issues on which reasonable people can disagree, but they cannot ignore. These issues include IMF transparency, moral hazard, subsidized interest rates, taxpayer exposure, and IMF loan conditions that can be counterproductive.
Although my call for IMF transparency last fall was not greeted with universal agreement, a great deal of progress has been made in recent months in acknowledging the need for change in this area. We now have a broad consensus for a much more transparent and open IMF, although the best means for accomplishing this objective is still under debate.
In the course of researching the transparency issue, the lack of transparency in the IMF financial statements became evident. Recently I had the opportunity to question a member of the IMF Executive Board about IMF finances. My questions elicited the admission that IMF finances were not fully transparent even to a member of the IMF Executive Board.
I would submit that if even high IMF officials do not understand IMF financial statements, then probably not many outside the IMF do either. But how can Congress and the public evaluate the performance and funding of an agency whose finances confuse even its own officials? The fault is not with these officials, but with an arcane and confusing presentation of financial information.
Recently the IMF released a code of principles for member countries that very well expresses the meaning of financial transparency. For example, one principle states, "Budget estimates should be classified and presented in a way that facilitates policy analysis and promotes accountability." I would suggest that the IMF should apply its generally sound transparency principles to its own accounts as well as to member nations. More facts concerning the IMF are needed before Congress can make an informed decision on the IMF appropriation. This is why I have requested a General Accounting Office (GAO) evaluation of the transparency and content of IMF finances.
Another major issue is moral hazard and its amplification through the use of subsidized interest rates. Currently, the standard IMF loan rate is about 4.5 percent. This is a much lower interest rate than those available in the U.S. for mortgages, consumer loans, and business loans. The use of subsidized interest rates can only deepen the already serious problem of moral hazard, the encouragement of risky ventures and activities by the prospect of a bailout. The bottom line is that the net effect of IMF lending is to subsidize risk and socialize at least some of the resulting losses. The IMF reform legislation I have introduced would end this practice of subsidized interest rates, and also require more transparency at the IMF. Meaningful structural reform of the IMF is needed whether or not an IMF expansion is financed in 1998.
We are fortunate to have such distinguished witnesses to discuss the major issues related to the IMF here with us this morning.
