Knight-Ridder/Tribune Media Services, June 1998
With the Japanese economy in a serious recession, and the "Asian contagion" hovering over US stock markets, the Clinton Administration has renewed its efforts to get increased funding from Congress to expand the International Monetary Fund (IMF). The money has been stalled in the House, partly because of widespread recognition that the IMF has actually worsened the economic crisis in Asia.
"The IMF has become the Typhoid Mary of emerging markets, spreading recessions in country after country," said Harvard economist Jeffrey Sachs, who has written extensively on the subject. By forcing governments to adopt unnecessarily high interest rates, slash credit to their banking systems, and cut spending, the IMF has helped create a real depression in the region.
The poor in Indonesia are now subsisting on leaves, wood, and beetles. Their numbers are expected to double, to 39 million people living on less than a dollar a day. Women throughout the region have been particularly hard hit, as they are the first dismissed from factories and other jobs. Millions of girls are being pulled out of school to help their families as they struggle to survive.
But the IMF has its defenders, who claim that things would be even worse without the international agency. In a recent article New York Times columnist Thomas Friedman asks us to imagine a world without the IMF, and conjures up a nightmarish satire of the chaos that would ensue.
But would it really be worse? What would have happened to Asia over the last year if there had been no IMF? First, it should be recalled that Japan offered last November to organize a regional bailout. They abandoned their efforts after the Clinton administration insisted that all assistance go through the IMF. While we do not have the details of the Japanese plan, it is unlikely that they would have insisted on the harsh recessionary measures that the IMF has imposed. After all, the depression in South Korea, Indonesia, and the other countries is cutting Japanese exports. This will make it much more difficult to pull Japan's economy out of its long slump, which in turn feeds back into the regional crisis. Japan's economy is twice as large as that of the rest of Asia combined.
Second, the American and other international banks that made bad loans to the region would have had to take some losses. The IMF got the governments of South Korea and Indonesia to guarantee the debt of the private corporations and banks in their countries that had borrowed internationally. Without the IMF acting as a collective bargaining agent for the foreign banks, this would probably not have happened.
Before even considering any new money for the IMF, Congress should investigate their role in turning the Asian financial crisis into a regional depression, and in bailing out the banks at taxpayer expense. After all, many of the most important details of IMF agreements with these countries are still secret, as are many of the Fund's internal documents. That is standard operating procedure at the Fund, and a growing chorus in Congress is insisting that this veil of secrecy be lifted. If the IMF has really done what most independent economists think it has done, its actions have caused enormous suffering in the region. By forcing these countries to try to export their way out of the depression on the basis of cheap currencies, they have also hurt our own economy. The U.S. trade deficit is soaring and hundreds of thousands of American manufacturing workers are losing their jobs.
Of course, the IMF bailouts have not been bad news for everyone. If not for the IMF's insistence that Asian governments guarantee the loans of private banks, some of the largest banks in the U.S., Japan, and Europe would be holding billions of dollars of worthless debt right now. Also, the collapse of the currencies and stock markets in the region mean that U.S. corporations can buy up Korean, Thai, and Indonesian businesses at fire sale prices.
Perhaps this is what the IMF's defenders mean when they say that the world would be a lot worse off if this institution did not exist.