By Anthony Rowley.

CONTRASTING attitudes struck by International Monetary Fund (IMF) managing director Michel Camdessus and World Bank president James Wolfensohn at the annual meetings of the two institutions in Washington last week seemed to characterise the malaise afflicting the Bretton Woods twins. Mr Camdessus appeared defensive to the point of being aggressive while Mr Wolfensohn was expansive and assertive. Unable to fix its bearings in a world where capital markets are king (or are supposed to be), the IMF continues to reel under criticism of its role in managing financial crises in Asia, Russia and Latin America.

Rightly or wrongly, Mr Camdessus has become identified with this policy failure. The World Bank, meanwhile, is seeking ever-wider spheres of influence under Mr Wolfensohn, who is viewed by some as Napoleon-like, keen on empire building and promoting a Washington-led model of development.

His vaunting ambition was summed up by the vision he presented at the Washington meetings of a grand development "coalition" led by the World Bank. For the IMF, the debate has widened from one of whether its prescriptions in Asia and elsewhere have been suited to the nature of the financial crises to whether the IMF should be at the centre of the "new international financial architecture", or simply a provider of official liquidity in an essentially market-driven system.

Mr Camdessus tried to deflect criticism from the IMF and from himself when he argued to finance ministers and central banks governors who make up the IMF governing board that IMF programmes in Thailand, Indonesia, the Philippines, Brazil, Russia and elsewhere had been "essential" and "successful". He also reminded them that these programmes have been undertaken with their unanimous approval. But this was not sufficient to lay to rest debate over Mr Camdessus' stewardship at the IMF. The question has become one of whether a man whose attitudes were moulded by the interventionist ethic of French bureaucracy is the kind of leader who can channel and tame market forces; whether he can bring them into a workable coalition with the official sector so as to bring some order to emerging-market capital flows.

The market wants the IMF to ensure governments pursue good policies in everything from fiscal discipline to creating sound financial systems, and to continue being a lender of last resort when things go wrong. The IMF, however, wants some kind of jurisdiction over crisis-resolution procedures and over capital flows. And it is pushing the private sector to share the burden of resolving emerging-market financial crises.

"The volatility of private capital flows can, and must, be diminished by promoting a mature relationship between creditors and their sovereign clients, and between the financial community and the official sector," Mr Camdessus argued.

This view was echoed by leading Asian nations, who united to attack what China's central bank governor Xiang Huai Cheng called the "law of the jungle" in global financial markets.
Mr Camdessus also drew support from some Asian governors when he argued that "involvement of the private sector (in resolving crises) is a matter of practical necessity since the private sector will be increasingly important for financing emerging markets and developing countries."

But the IMF has probably antagonised too many Asian nations with its own approach to crisis management for Mr Camdessus to count on their unqualified support.
The idea of involving or "bailing in" the private sector on officially orchestrated debt workouts in emerging markets remains anathema to bankers, bond holders and other creditors.

At issue is whether resolution of financial crises should be left largely to the market, once the IMF has doused the fire with official liquidity, or whether the IMF should be given powers to compel bankers and investors to join in coordinated strategies for crisis resolution.

Attitudes are hardening on both sides. IMF first deputy managing director Stanley Fischer warned that the "political will" no longer exists among major countries to provide funds to finance official bailouts.

"It takes two to tango," he said, and private financiers must be prepared to share more of the burden. A crisis might develop in future where the scale of funds needed "is so large that the official sector cannot cope and the private sector will have to be involved". But at the Institute of International Finance (IIF), a kind of trade association for the world's major banks and securities firms located near the IMF in Washington, managing director Charles Dallara insists the IMF should not take any action which compromises the principle of "voluntary, case-by-case approaches to emerging-market crisis resolution".

IIF vice-chairman and Citibank head Bill Rhodes also warns the IMF against trying to force emerging-market nations issuing sovereign bonds to include "collective action clauses" requiring bond holders to behave like banks in seeking a common approach to crisis resolution.

At present, bonds issued under (dominant) US laws allow this class of creditor to pursue individual legal actions against debtor nations, making it difficult to secure an orderly debt workout. "Any action by the IMF to force emerging markets to accept this type of clause would hurt the market," he argues.

The IIF also claims the IMF should shift its focus from "crisis management to crisis prevention" to restore market confidence in emerging markets. Flows to 29 major emerging markets have collapsed from a peak of US$335 billion in 1996 to an estimated US$135.5 billion in 1999 (slightly below the 1998 level) and are expected to recover only to US$155 billion next year. Debate over how and how much the private sector should be involved in crisis resolution seems likely to drag on at least until the next meeting of the Interim Committee in April next year.

Meanwhile, all that a seemingly impotent Mr Camdessus could do was to express "disappointment" at the slow progress on this and on other "architecture" issues, such as exchange-rate regimes.

World Bank president James Wolfensohn, meanwhile, appeared anything but impotent.
He predicted that the efforts of the World Bank and IMF, United Nations agencies, regional development banks, bilateral agencies and non-government organisations could soon be linked within a global development coalition as a part of what he dubbed the "new international development architecture".

"Very shortly, the Development Assistance Committee (of the Organisation for Economic Cooperation and Development) will report on its review of bilateral and multilateral initiatives," he said. This "will conclude that the need for partnership and more coordinated efforts is widely recognised and accepted". He also claimed that the report would endorse the Comprehensive Development Framework (CDF) which the World Bank has devised under his leadership. This is aimed ostensibly at eliminating wasteful duplication of effort among the many official and private agencies involved in development.

But some claim it disguises an attempt by the World Bank to dominate the global development agenda. Asian Development Bank president Tadao Chino, for one, has challenged attempts to impose a single, Washington-influenced development model and has called for "competitive pluralism" among regional development banks and other institutions. The object of the CDF, said Mr Wolfensohn, is to "bring the social and structural aspects of development together with the macroeconomic and the financial so as to establish a much more balanced and effective approach". It is designed to "bring the players together, so as to leverage all our activities and to work with the broad development community - the UN, European Union, bilaterals, regional development banks, civil society and the private sector, to build a new generation of private partnerships". What is needed now, he suggested, is a "new international development architecture to parallel the new global financial architecture". The architecture will have begun to take shape by the time the next annual meetings of the World Bank and IMF take place in Prague next year, he predicted.