WASHINGTON, (Reuters):
The International Monetary Fund (IMF) began the centrepiece of its annual meetings here on Saturday, planning changes to make economic crises like those that have bedevilled Argentina and Brazil less frequent, as 3,000 police braced for protests around the city.
The global lender's policy-setting International Monetary and Financial Committee, comprising finance ministers from rich countries and the developing world, began a meeting early on Saturday to set the IMF's agenda for the coming six months.
One of the top items on the agenda is how best to shore up the nascent global economic recovery, which has not taken hold as quickly or as strongly as the IMF had hoped just a few months ago. The lender will call for rich nations to rebuild confidence shaken by plunging stock markets.
And Europe and Japan will face calls for economic reforms to bolster their long-term growth prospects.
"There's a recognition that the recovery is slower than expected and ... risks remain," Gordon Brown, chairman of the IMFC and British finance minister said before the meeting.
At the meeting, U.S. Treasury Secretary O'Neill said, "North America continues to be the engine of global recovery," and others must do more to bolster prospects.
But with key Latin American nations embroiled in economic turmoil and others in the region looking increasingly vulnerable, it is crisis prevention that will take centre stage at the meeting.
"The latest experience in Latin America should ... make us more humble about our own performance. The IMF, too, has a lot of unfinished business," IMF Managing Director, Horst Koehler, said in a recent speech.
Meanwhile, outside the meetings, protesters gathered. The raggle-taggle bunch, who oppose everything from the World Bank's involvement in oil and gas projects to the need for more debt relief for poor countries, are expected to only number a few thousand after police depleted their ranks with more than 600 arrests in scattered street skirmishes on Friday.
The number of protesters outside paled in comparison to the crowds in April 2000, when tens of thousands of anti-globalisation demonstrators turned the streets near the IMF's headquarters into something of a siege zone.
Bankruptcy court
Perhaps the single most important development expected on Saturday is that the IMFC will mandate the lender to come up with a concrete plan to pave the way for setting up a sort of international bankruptcy court to deal with what should happen if a country defaults on its debts.
The issue has been spurred on by the economic collapse and subsequent default of Argentina - the former Wall Street darling and erstwhile poster child of IMF reforms. And with Brazil hit by investor worries that a $250 billion debt default is possible, there is finally agreement that something must be done to avoid a repeat of the Argentine debacle.
The IMF hopes a new bankruptcy court will make the process of default more predictable, less painful and eventually act as a steadying influence on emerging market investors.
The fund's approach complements another plan endorsed on Friday by the Group of Seven industrialised nations - the United States, Japan, Germany, Britain, Canada, France and Italy. The G7 said on Friday all foreign emerging markets bonds should now include so-called collective action clauses detailing what should be done if a default occurs.
"Preventing crisis is the first order of business for the IMF," O'Neill told the IMFC meeting. "Despite our best efforts, crises will happen and we must be better prepared to facilitate their resolution."
While O'Neill and others support the approach of both collective action clauses and an international bankruptcy court, not everyone agrees. The G24, a group of top emerging market economies, said on Friday it was "open-minded" about the G7 plan but "sceptical" about the IMF's idea. Wall Street too opposes the IMF's plans.
Nevertheless, the fund is convinced an international bankruptcy court will help its other crisis-prevention steps. Among those under way are plans to restrict loans to reasonable sizes unless circumstances are extreme and to do a better job of tracking developments in financial markets.
The discussion comes as Argentina's economy flounders in a state of collapse after nine months of failed talks to restart aid. Meanwhile Brazil is mired in a crisis of confidence ahead of October presidential elections, which prompted the IMF to fork out a record $30 billion bailout.
Earlier in the week, IMF boss Koehler had floated the idea that rich nations might consider increasing their contributions to the IMF's war chest - something the lender calls quotas.
O'Neill, holding the purse-strings of the IMF's most powerful shareholder dismissed that out of hand. "There is no need to increase IMF quotas," he said bluntly at the meeting.
