- The Washington Times - Tuesday, March 21, 2000

No serious observer doubts the International Monetary Fund (IMF) and World Bank need to be held more accountable. International aid dollars frequently are "wasted, squandered, or stolen," in the words of the recently released report of the International Financial Institution Advisory Commission. Lawmakers should welcome the report's call for fundamental reform of the international lending system.
While working toward this overall goal, however, Congress should take immediate action to prevent loans from the IMF and the World Bank from flowing to corrupt and inefficient foreign governments. Last decade's "diversions" by the Russian Central Bank of foreign loans targeted for the country's economic recovery is a classic example of such abuse.
Fortunately, the U.S. banking system discovered inappropriate activity by Russian officials. But despite this evidence, the Clinton administration continued to support increased international loans to Moscow. In April 1999, for example, the administration was alerted to allegations of money laundering of up to $10 billion in IMF funds through the Bank of New York and the Republic Bank of New York. Yet the White House worked to secure a new $4.6 billion IMF loan to Russia. The administration did not even require the Russians to provide full disclosure of past violations, or take steps to prevent future ones.
Not that Russia is unique. According to Transparency International, a Berlin-based watchdog organization, many recipients of IMF and World Bank assistance, such as Indonesia, Pakistan, Mexico and the Democratic Republic of Congo, all are notoriously corrupt.
Congress must look beyond the U.S. financial system to address this problem. It should block loans from going to governments that refuse to establish minimum transparency standards and root out corruption. And it should hold responsible U.S. and international officials who support making loans to governments known to be corrupt.
Some lawmakers have suggested requiring the U.S. representative to the IMF to vote against loans for countries with a high level of corruption. Unfortunately, the IMF rarely holds such votes. To help enforce congressional mandates on lending, Congress needs to require formal, recorded votes for every IMF financial decision.
Congress should also define what constitutes a high, moderate or low level of corruption and require prospective aid recipients to be rated accordingly. At the very least, no disbursements to governments suspected of corruption should be made until an investigation is conducted and completed.
Perhaps most important is to demand that international financial organizations use accepted financial auditing practices, "due diligence" procedures (background investigations), and fiduciary duty standards, which require investors to act in the best interest of their clients. Private financial institutions worldwide are required to use exhaustive due diligence procedures and handle investments with care; they are held legally liable if they fail to do so. The same rules should apply to international financial institutions as well.
Sunlight will help greatly: Congress should insist that all documents relating to an international financial institution's loan decisions, compliance measures, and progress reports on economic reform packages be placed in the public domain. The IMF and World Bank rarely release information on their loans to the public. Taxpayers have the right to know how recipient governments are spending their dollars.
It is time to increase personal (not just institutional) accountability for these loans. Congress should hold U.S. officials who oversee these loan decisions to the same standards as private-sector lenders. U.S. representatives at the World Bank and the IMF, as well as the U.S. treasury secretary, should be held legally responsible if they negligently approve loans that are subsequently abused.
Finally, Congress should call for reform of the immunity provisions that make international civil servants untouchable. Today, these officials enjoy immunity from civil and criminal action. Legislation should pare back the immunity from prosecution. Congress should also demand that the IMF and the World Bank implement protections for whistleblowers similar to the ones used by the federal government.
With the IMF about to name a new chief, now is the ideal time for U.S. lawmakers to insist that the agency undergo fundamental reforms that will stop it from rewarding corruption and inefficiency.


Brett D. Schaefer is the Jay Kingham fellow in international regulatory affairs and Ariel Cohen is a research fellow in Russian and Eurasian studies for the Heritage Foundation's Davis International Studies Institute.

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