The IMF and World Bank were pressured by the US government to get involved in Iraq, in an ill thought-out move that threatens the very credibility of the international financial institutions, a senior US congressman says in an exclusive interview with Emerging Markets.
Barney Frank, the ranking Democrat on the House Financial Services Committee, which supervises the World Bank, IMF, Federal Reserve as well as the entire banking and securities industries, says: ?I am afraid that they [IFIs] are going to spend a lot of money in there at America's behest in a framework that doesn't get us where we need to go,? he says.
Frank, who will become chairman of the financial services committee if the Democrats regain control of the House, added that the institutions are in danger of failing in Iraq ? and of being seen, by some, as stooges of US policy. ?In Iraq, I think they have greatly overreached their remit. I don't think that's an appropriate role for them. The problem is that under the current framework, nothing works well.?
Although Frank is well-known as an outspoken critic of the Iraq war, his views on the involvement of the IFIs echo concerns, even among some members of the executive boards and senior staff of both institutions, that the Fund in particular should not have got involved in Iraq in the absence of a viable framework. In particular, they are concerned about the lack of a properly functioning and independently elected Iraqi government ? something that has yet to occur. The IMF board approved funding under an emergency post-conflict assistance programme last week and is evaluating a possible stand-by agreement.
?Clearly the Bush Administration is desperate to try and show some more positive results,? he says. Frank's views, perhaps unsurprisingly, diverge from those of Iraqi Finance Minister Adil Abdul Mahdi, who told Emerging Markets he has no doubt about the urgency of the Fund's role. ?They can give us a lot of assistance to make the system function better. So there's a lot to be done,? he says.
Yet Frank's reservation about the involvement of the IFIs in Iraq does not undercut his strong call for a write-off of the country's debt. ?I think the Iraqi people would be better off with [the debt] written off. I think making desperately poor people pay those debts is a bad idea,? he says.
?I think that's a reasonable thing for the US to do, but I think it has to be genuinely internationalized and what I fear is that George Bush has generated so much dislike of America, and has so discredited America with regard to Iraq, that it's going to be hard for us to attract the international support we need.? However Paris Club Chairman Jean-Pierre Jouyet told Emerging Markets that divisions between creditor nations have been overplayed. ?We cannot say that there is a deadlock in the Paris Club process. It's an ongoing process,? he says.
Commenting on the deteriorating security situation in Iraq, Frank says that Congress was almost unanimous in its apprehension. ?There is a lot of concern [in the House]. I was talking the other day to a very senior Republican member of Congress with national security responsibilities who is deeply troubled by the deterioration of the situation in Iraq. Deeply troubled.?
In a chilling sign that the US drive to rebuild Iraq has come to a halt, Frank, one of the war's most vocal critics, says he is inclined to back US Ambassador John Negroponte's bid to shift money from infrastructure to security. Negroponte has urged the Bush Administration to reallocate $3 billion earmarked by Congress to beef up national guard battalions ? a plan Congress has yet to agree upon.
?In this case some of the critics would agree [with this approach]. I am inclined to agree, even though I start with the premise that the whole enterprise was a mistake,? says the Massachusetts congressman.