The Empire Strikes Back.

• Author: Bergsten, C. Fred

Why the Meltzer Commission report is bad policy and unfairly maligns two highly successful international institutions.

The international financial crises of the 1980s and 1990s have spawned widespread calls for reform of the "international financial architecture." A good deal of reform is already taking place:

* Most emerging market economies have floated their exchange rates, reducing the risk of disruptions due to doomed efforts to preserve unsustainable parities;

* private lenders are increasingly "bailed in" to country workout situations, spreading the burden of international rescue packages and dampening the prospects for excessive future flows to emerging markets;

* there is growing acceptance of host-country restraints on short-term capital inflows -- as deployed in different forms by Chile, China, and Malaysia -- to avoid excessive buildups of liquid foreign debt;

* progress is being made to reduce imperfections in the private capital markets through improved statistics, expanded disclosure of country data and IMF analyses of its members' economies, and implementation of international best-practice benchmarks for the reform of national banking systems; and

* modest but politically important institutional innovations have taken place with the creation of the G20 and the Financial Stability Forum.

To date, however, little reform has occurred in the functioning of the main international financial institutions (IFIs) -- the International Monetary Fund and the World Bank. Two reports have recently been published on this set of issues. The first, from an Independent Task Force sponsored by the Council on Foreign Relations (CFR), was unanimously agreed on by its members and released in September 1999.(1) The group included a number of notable Americans including Paul Volcker, George Soros, several corporate CEOs, former Cabinet members Ray Marshall and Jim Schlesinger, top economists including Martin Feldstein and Paul Krugman, former members of Congress Lee Hamilton and Vin Weber, and political experts Ken Duberstein and Norman Ornstein. It was co-chaired by former cabinet members Peter G. Peterson and Carla Hills, and directed by my colleague Morris Goldstein.

The second report, released in March 2000, is from the International Financial Institutions Advisory Committee (IFIAC) created by Congress in 1998.(2) According to the Dallas Morning News of March 13, its "majority was handpicked by (House Majority Leader Richard) Armey." The IFIAC split by a vote of 7.5 to 3.5 (with the halves reflecting the fact that one member signed both the majority and the dissenting statements). Three colleagues and I submitted a joint dissent, which is included in the published report.

As the only person who was a member of both commissions, I believe it is valuable to compare the two reports in considering the proper path for international financial reform. There was significant agreement between them on several key issues:

* a clearer delineation of the future responsibilities of the IMF and the IBRD: the Fund should be responsible for...