Economist Milton Friedman contends the world doesn't need a reformed International Monetary Fund -- rather, it needs to let markets work without IMF interference. The Nobel Prize recipient points out that after the system of fixed exchange rates created at Bretton Woods collapsed in 1971, the IMF lost its only function and should have closed shop.

Instead, it found a new role as an economic consulting agency to countries in trouble.

Here are some of Friedman's observations:

• The IMF has encouraged country after country to continue with unwise and unsustainable policies longer than they otherwise would have or could have -- leading to more, rather than less, financial instability.

• In the Mexican crisis of 1994-95, the IMF didn't bail out the country -- rather, it bailed out banks and other financial institutions that had made dollar loans to Mexico which the country couldn't repay.

• That bailout encouraged individuals and financial institutions to lend to and invest in East Asian countries -- secure in the knowledge that the IMF would also rescue them if the unexpected happened.

• Friedman blames the IMF, the U.S. and other countries which back the fund for allowing taxpayer money to be used to subsidize private banks and other financial institutions.

The present crisis, he writes, is not the result of market failure, but of governments intervening in or seeking to supersede the market -- with limited or nonexistent accountability. Governments -- whether national or international -- should get out of the way and let the market work.

Source: Milton Friedman (Hoover Institution), "Markets to the Rescue," Wall Street Journal, October 13, 1998.