Don’t Let the IMF Reload
February 24, 1998 – published in St. Paul Pioneer Press
Fifty years ago the International Monetary Fund(IMF) was created to help countries overcome short term liquidity crises. Today it is literally dictating the economic and political future of almost a billion people on four continents.
People on all sides of the ideological spectrum are concerned that the IMF has run amok. For them, 50 years may be enough. On the right, George Schultz, William Simon and Walter Wriston, the former Secretaries of State and Treasury and the Chairman of Citicorp, respectively declare in the Wall Street Journal, “The IMF is ineffective, unnecessary and obsolete.” On the left, the AFL-CIO insists that the IMF’s “policies are short-sighted and must be fundamentally altered”.
The IMF is asking U.S. taxpayers for another $18.5 billion. The President vigorously supports that request. Congress, while expressing some reservations, appears willing to acquiesce.
Why? The IMF’s economic performance, contrary to its own p.r., has been singularly unimpressive. Many nations that accepted its advice had worse economic performances after than before. Africa is more indebted and poorer now than it was 20 years ago. Most Latin American countries have not fared well under the IMF’s radical policies.
Jeffrey Sachs, head of the Harvard Institute for International Deveopment, notes the remarkable inaccuracy of the IMF’s short term economic predictions. In April l995, the IMF predicted that after following its policy prescriptions, the Argentina economy would expand by a healthy 3 percent. Instead it contracted by 4.6 percent. In 1995, the IMF forecast a Mexican growth rate of 1.5 percent. The economy shrank by 6.1 percent.
Last summer, just weeks before the Asian economic bubble burst, the IMF gave the region’s economies high marks. And when small fires broke out in Asian economies, the IMF dosed them with gasoline by demanding the closure of local banks, generating a full scale depositor panic and a full blown economic blaze.
Having shot the legs out of many of the world’s economies, the IMF is coming back for more ammunition. Reminds me of the line from Lily Tomlin’s Ernestine, “We’re the phone company. We don’t have to care.”
Actually, for most Asians, the IMF is very caring, just not about them. They see a double standard at work. The IMF prohibits governments from bailing out local banks and businesses while insisting that governments repay every dime owed to foreign investors, plus interest, even when the investments were made to private firms.
That outrages true believers in free markets. Foreign investors knew the risks they were taking when they accepted interest rates 50 percent above the norm in their own countries. Why shouldn’t they suffer the consequences of their speculative follies? As Schultz and company observe, “As is typical when the IMF intervenes, the governments and the lenders were rescued, but not the people.”
For many Asians, the IMF is part of a plot by the U.S. to take over their countries. It is hard to blame them. The IMF demands that governments change their laws to allow foreigners to dominate their economies. South Korea used to limit foreign shareholding to 26 percent of a company’s stock. Last month it agreed to allow foreigners to own a majority. The restructuring of the Thai financial system , notes the Wall Street Journal, “is expected to result in foreign majority ownership in many of the country’s l5 commercial banks.”
The Asian economic miracle was guided by substantial government involvement, one of those bothersome facts American policymakers always failed to note when extolling the remarkable growth rates of Asian nations. The current economic crisis offers them a marvelous opportunity to do away with that alternative capitalist growth model. That this is their goal was made abundantly clear last fall, when Asian nations proposed to solve their own problems by establishing an Asian Regional Fund. Fearing that such a fund might resolve the crisis without turning Asia into an American-style capitalist system, the U.S. nipped the effort in the bud.
The Asian crisis, and that of Mexico before it, demonstrate how profoundly destabilizing is the worldwide flood of speculative capital. Many economists now recognize the need for capital controls. They note that Chile, a country that heavily penalizes short term foreign investors has weathered the current economic storm.
Tragically, the IMF is marching in the opposite direction. It not only demands the abolition of capital controls by those seeking aid, but it is proposing to change its Articles of Agreement to require even economically prosperous members to eliminate any such controls.
There is no urgency for Congress to allow the IMF to reload. But there is indeed an urgent need for Americans to engage in a public debate about whether the weaponry of the IMF is any longer being used in the best interests of humankind.