International Issues

International Monetary Fund Promotes Currency Crises

A number of experts in international finance are calling for Congress to abolish the International Monetary Fund. Not only is the IMF obsolete, in their view, but its actions may be promoting currency crises in client countries.

  • The IMF was established after World War II to promote trade and development, and provide short-term loans to countries experiencing temporary problems with their balances of payments.

  • But the institution became superfluous in the 1970s when the world abandoned the Bretton Woods system of fixed exchange rates -- moving to a system of floating exchange rates where the relative value of currencies are set by the market.

  • Rather than quietly folding up and disappearing as critics say it should have, the IMF found a new function for itself by giving structural adjustment loans to countries which get themselves deeply in debt.

  • Many critics say that not only have these loans been ineffective, their availability may actually be responsible for developing countries' failure to adopt sound economic policies -- secure in the knowledge that the IMF will bail them out.

Experts say that all the major currency and banking crises of the past five years have occurred under conditions of heightened IMF surveillance -- including Mexico in 1994, Africa in 1995 and Thailand, Korea and Malaysia in 1997. They note that the IMF has now bailed Mexico out four times since 1976.

Both George Shultz, a former secretary of State and of the Treasury, and former Treasury Secretary William E. Simon have called for Congress to eliminate the IMF. Shultz would like to see it merged with the World Bank.

However, the Clinton administration is asking Congress to approve $3.5 billion in additional funding for the IMF this year.

Source: William E. Simon (John M. Olin Foundation), "Abolish the IMF," Wall Street Journal, October 23, 1997.

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