International Policy

The Last International Monetary Fund Bailout?

Three highly-respected experts from the worlds of diplomacy and finance are cautioning that any International Monetary Fund bailout of East Asian nations from their current financial crisis must be the last ever. Former Secretary of State George Shultz, former Treasury Secretary William Simon and former Citicorp/Citibank Chairman Walter Wriston -- writing jointly in the Wall Street Journal -- want Congress to cease allocating funds to the IMF, and abolish it instead.

They blame the financial problems of irresponsible governments on the promise of massive intervention the agency holds out.

  • In their view, the private parties most involved must share the pain and resolve their own difficulties -- perhaps with a modest program of public financial support and policy guidance.

  • The $118 billion Asian bailout -- which may rise to $160 billion -- is by far the largest ever undertaken by the IMF.

  • The currency crisis among Asia's "tiger" economies arose, they surmise, because those nations' governments attempted to maintain an exchange rate pegged to the U.S. dollar -- while conducting monetary policies which diverged from that of the U.S.

  • The gold standard has been replaced by the strict discipline of an information standard, enforced by thousands of currency traders around the world -- who can spark devaluations when they encounter unwise speculation and ventures sponsored by governments, and crony capitalism.

There are already signs that several Asian nations have violated the terms of their IMF agreements, the critics say. The IMF's efforts distort international investment markets by encouraging investors to seek out risky markets on the assumption that if their investments turn sour, the IMF will repay them -- something its founders never contemplated.

In any event, in a world in which two trillion dollars are traded daily on the international currency markets, IMF loans are trivial. The markets' verdicts on unsound economies and financial policies will always count more than the meager efforts of politicians. Schultz, Simon and Wriston call the IMF ineffective, unnecessary and obsolete -- and argue that, once the Asian crisis is over, it should be abolished.

Source: George P. Shultz, William E Simon and Walter B. Wriston, "Who Needs the IMF?" Wall Street Journal, February 3, 1998.

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