Washington Times, September 28, 1998
San Francisco Chronicle, October 2, 1998
After fighting with Congress since January over $18 billion to expand the IMF (International Monetary Fund), the Clinton Administration has made its first concession to critics. Last week Treasury Secretary Robert Rubin, the Administration’s chief lobbyist for the funding, said: “I’m not saying the IMF is perfect, because it is not. But it needs funding to protect our national interests.”
That is like Monica Lewinsky saying, “Linda Tripp has not been a perfect friend, but she is a good listener, and so I will continue to confide in her, and trust her advice.”
But in Washington, perception is everything, and reality is a sidebar. The Clinton Administration is banking on the perception of the IMF as some sort of International Red Cross that rescues countries that have run into financial trouble. With every tremor in the international economy, as well as the U.S. stock market, the Administration has exhorted the Congress to approve the money or risk being blamed for the next disaster.
It is now well recognized that the IMF actually helped create the Asian crisis by encouraging countries like South Korea, Indonesia, and Thailand to open their financial markets to vast amounts of unregulated overseas borrowing. Then they worsened it: first, by failing to act as a lender of last resort, which could have stemmed the panic– for example, by March of this year Indonesia had received only $3 billion out of a promised $40 billion. And second, by imposing harsh and unnecessary austerity measures on the afflicted economies. The result was a regional depression that has made it even more difficult for Japan, which depends heavily on exports to the area, to pull out of its prolonged slump.
The IMF did manage to bail out the big foreign banks– American, European, and Japanese– that had made bad loans to the private sector in Asia. The IMF required the governments of the affected countries to guarantee payment on these loans, as a condition of their aid packages.
Of course not everyone would consider the Asian economic crisis a disaster. Michel Camdessus, the head of the IMF, has called it a “blessing in disguise.” Perhaps he will forgive the people of Indonesia, the majority of whom now earn less than what they need to buy a subsistence quantity of rice, if they can’t see through the disguise.
Then there is Russia, where the last $4.8 billion of IMF money went straight into the outstretched hands of speculators, in a fruitless attempt to defend the value of the ruble. Unfortunately the ruble’s stability was about all the IMF had to show for its six years of intervention there, during which the average Russian household has lost about half of its income.
A majority of the House of Representatives saw this as the last straw, and last week they voted to cut $14.5 billion out of the President’s request for IMF expansion. But the Senate has already approved the full $18 billion, and so the difference will have to be resolved in conference. President Clinton has threatened to veto any bill that doesn’t include the full amount.
The Administration and its allies insist that the IMF’s expansion is necessary to help stabilize the global economy. But this is wrong on all counts. First, as we have seen, the IMF is primarily a destabilizing force. Second, there are other, more constructive solutions to regional crises: for example, Japan proposed a $100 billion fund to stabilize the region’s currencies in August of 1997, before they went into free fall. This idea was killed by the Clinton Administration, which insisted that any such funding be controlled by the IMF.
Finally, there is something that our government could do to help stave off a global recession, and it would help Americans even more in the process. The Federal Reserve could lower interest rates. This is long overdue in any case, since real interest rates (that is, adjusting for inflation) are extremely high– more than twice the average over the last four decades. President Clinton has made noises about a co-ordinated interest rate cut by the world’s major economies, but Germany’s central bank is not interested. Japan has nowhere to go on this score, with their short-term rates already down to one-quarter of one percent. If President Clinton is serious, however, he could pressure the US Federal Reserve, whose response in times like these tends to be too little and too late.
There may well be further turbulence ahead in the world economy. But the IMF is part of the problem, not the solution. The majority of the House, including both Republicans and Democrats, understand this reality. They should hold firm, and not be intimidated by the Administration’s threats to “spin” any future crises against them.