Tuesday, September 29, 1998 Published at 21:17 GMT 22:17 UKKnives out for IMF
The pressure for a major overhaul of the International Monetary Fund has been mounting in the lead-up to the organisation's annual meetings which start in Washington this week.
The IMF was meant to guide the world away from financial turmoil.
Instead things seem to have got worse and developed into what President Bill Clinton has described as the most serious challenge faced by the world economy in 50 years.
The crisis has prompted the chief economist of the World Bank to question whether the IMF knows what it is doing in its rescue operations.
The fund's coffers are almost empty after it pumped tens of billion of dollars into South East Asia and the former Soviet Union economies.
There are growing fears 'the lender of last resort' will have not have enough cash left to bail out Latin America's largest economy - Brazil - should it crumble.
Global growth slowing down
The IMF/World Bank annual meeting has begun in Washington on Wednesday with the release of the fund's semi-annual World Economic Outlook, predicting a sharp fall in global growth rates.
It cut its forecast of 1998 world economic growth to 2% from the 3.1% forecast just six months ago.
Debate will continue in formal and informal meetings until next week, including a crucial meeting of the world's biggest economies on Sunday chaired by UK Chancellor Gordon Brown.
IMF under attack
The IMF also stands accused of failing to stop the ripple effect of the Asian crisis from spreading, helping to push Russia over the edge and causing problems in Latin America.
Attaching harsh conditions to its financial bail-outs has meant the poorest people in crisis-hit countries like Indonesia have suffered.
The IMF maintains the Asian contagion would have been far worse if it had not stepped in.
But most world leaders agree some sort of reform of the IMF is now essential.
IMF Managing Director Michael Camdessus said the IMF was working with its member governments and other international institutions to "strengthen the 'architecture'" of the global financial system.
He admitted: "The world cannot wait ... for a lull before starting to do a better job at crisis prevention."
But Alan Greenspan, chairman of the powerful US Federal Reserve says even a flawed IMF is better than no IMF at all.
He said: "If you have got to go to work in the morning and all you've got is a bicycle and you think you want a limousine, a bicycle is better than nothing.
"And it may be that the IMF is a bicycle. It will work. It will get us there."
Opposition in the US
US President Bill Clinton meanwhile has reiterated his support for the IMF role in policing the global economy but also stressed the need for reforms.
The Democrat president is in a somewhat embarrassing position, however, as the Republican House of Representatives has consistently refused to approve the US $18bn share of a $90bn increase in IMF funding approved by other member countries a year ago.
Some members of Congress are concerned about the so-called 'moral hazard' - where private banks and companies did not worry about how much they were borrowing because they knew the IMF would step into help.
They want to toughen the rules for IMF membership and allow it to only lend to member countries pursuing sound economic policies and tougher regulation of their financial sector.
There is no shortage of other suggestions for reform.
The general consensus it that the IMF must be made more transparent and its actions more rigorously monitored and assessed.
Other suggestions range from a bigger role for the private sector to merging the World Bank and the IMF or even abolishing the fund altogether.
Origins in World War II
The IMF and its sister organisation the World Bank were originally set up in 1944 at Bretton Woods, in New Hampshire.
The conference was called because it was clear that the Second World War was entering its final phase and a set of rules was needed to guide the post-war world economy.
The IMF's role was to provide temporary finance for countries with balance of payments problems.
It would also promote international trade by overseeing a system of fixed, but adjustable, exchange rates.
Fixed rates ended in 1971, although controls on capital movements lasted until 1979 in the UK and until the 1980s in France and Italy.
The IMF now monitors a 'globalised' world financial system with floating exchange rates.
Some leaders have hinted they would like to see a return to a more managed currency zone.
Gerhard Schroder, Germany's chancellor designate has backed plans to set target zones for the world's main currencies to help avoid a recession.
World leaders pile on pressure
The political pressure meanwhile continues to mount.
British Prime Minister Tony Blair and French President Jacques Chirac have both called for a revamped IMF.
In a speech to the New York Stock Exchange last week Mr Blair said he would like to see a new version of the IMF and World Bank within a year.
He stressed: "We should not be afraid to think radically and fundamentally. We need to commit ourselves today to build a new Bretton Woods for the next millennium."
Mr Chirac said "the IMF must remain the centre of the system" but needs increased "political legitimacy."