Opinion Editorial | |
| Wednesday, April 8, 1998 | |
Armey Attacks $18 Billion Monetary Fund Bill |
When the House of Representatives returns next week, one of the first orders of business will be an appropriation of $18 billion for the International Monetary Fund (IMF). Bill Clinton is strongly pushing for these funds to help the IMF cope with the Asian financial crisis, and the Senate has already passed the legislation. However, passage in the House still remains up in the air, especially since Majority Leader Dick Armey (R-Texas) has launched a full-scale attack on the IMF funding bill. In a memo to all House Republicans on April 2, Mr. Armey laid out his argument against new IMF funds (available at http://www.freedom.house.gov). First, he said, the money is being appropriated with undue haste, without adequate debate. "In any other context, a suggestion that we provide $18 billion in taxpayer money to anyone, without an informed public debate, conditions on its use, or even the possibility of effective congressional oversight in the future, would be rejected out of hand," Mr. Armey wrote. Second, there are important questions about whether the IMF in fact needs additional funds. Mr. Armey notes that even with the costs of the financial crisis in Indonesia, South Korea and Thailand, the IMF will still have $60 billion to $70 billion in assets to handle any new problems. He also suggests that it might make more sense for the IMF to raise any additional funds it needs by borrowing in financial markets, as the World Bank already does. Third, and most importantly, Mr. Armey argues that giving significant additional resources to the IMF to bail-out private lenders will only encourage more financial crises. The reason is because of something economists call a "moral hazard," in which government policies ironically encourage the very problems they are designed to prevent. In this case, private banks are encouraged to make risky loans for speculative projects in developing countries because they believe, implicitly, that if the market collapses the IMF will bail them out. As Mr. Armey puts it, "by covering risky investments we get...more risky investments." Mr. Armey believes that the Clinton Administration has done more than any previous administration to encourage and indeed subsidize risky overseas investments by U.S. financial institutions. Starting with the Mexican bail-out in 1995, its policy has been to shift more and more international investment risk from private investors to the U.S. taxpayer. Mr. Armey calls this the "Clinton Doctrine." It is unlikely that the House ultimately will vote down the IMF funds. Mr. Armey's principled position is, unfortunately, a minority view even among Republicans, who are being heavily pressured by their supporters in the business community to vote for the $18 billion. However, there is the possibility that strings may be attached to the money that will, at least, require the U.S. Executive Director to the IMF to vote for more free market-oriented policies and encourage the IMF to be more open about its policies and decision-making process. Rather than concentrating on the U.S. Executive Director, it would make more sense for reformers to get the Treasury Department to increase its oversight of IMF activities and report to Congress more frequently about them. Only the Treasury has the staff and the access necessary to closely monitor the IMF's day-to-day operations. Also, the U.S. Executive Director to the IMF reports directly to the Treasury and gets its approval on all IMF votes anyway. But Congress must also be willing to devote more time, effort and resources to oversight of the IMF. Otherwise, any reform legislation will quickly become a dead letter. Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), April 8, 1998. Home | Support Us | All Issues | Social Security Debate Central | Contact Us |