US calls for more reforms as IMF backs Kohler

The US government yesterday put forward new proposals for reform of the International Monetary Fund, as the Fund's executive board rubber-stamped the choice of Horst Köhler, a German official, as its new managing director.

The US plans were less radical than those suggested in a recent report prepared for Congress by an academic commission, that was criticised yesterday by Lawrence Summers, the US Treasury Secretary.

But Allan Meltzer, the chairman of the commission, said Mr Summers had moved some way towards supporting the principles of the report.

Mr Summers said the advisory commission's recommendations would harm the IMF's ability to respond to international financial crises like that which afflicted Asia in 1997-98.

The Meltzer report says IMF loans should go only to countries which satisfy stringent pre-conditions, but it should go to them automatically if they have qualified. It also recommends that the IMF should get out of long-term lending altogether, while the World Bank should focus on long-term development but switch from lending to aid grants.

Mr Summers was particularly critical of the suggestion that the IMF should be able to make unconditional loans to "pre-qualified" countries. "History has confirmed time and time again that unconditional support is less likely to achieve its object," he said, adding that it also created "moral hazard", encouraging excessive private lending by offering a bail-out of private investors in a crisis.

The US administration's alternative yesterday did not suggest such a radical downsizing, although it did propose the Fund should stop offering long-term development loans to poor countries.