International Issues | |
Monetary Fund Lacks Mission, Not Money |
Just before Congress left town last week, it handed the Clinton Administration
another defeat by refusing to appropriate an additional $3.5 billion for
the International Monetary Fund (IMF). Cancellation of the funds resulted
from a dispute between Republicans in Congress and the administration over
spending in the foreign aid budget for abortions. The administration complained bitterly that Congress's failure to appropriate
more money for the IMF could hamper its ability to deal with international
financial crises. However, it is not at all clear that the IMF needs additional
resources, or that it is really capable of dealing with the sorts of problems
the nations of Asia are currently experiencing, even with additional funds.
Indeed, a growing number of experts are coming to believe that we don't
really need the IMF any more at all. The IMF was created, along with the World Bank, by the Bretton Woods
Agreement following World War II. Whereas the World Bank's role was to aid
in reconstruction after the war, the IMF's purpose was to help restore order
to the international monetary system. It is important to remember that at
this time international exchange rates were largely fixed. That is, nations
would set their currencies to equal a fixed number of U.S. dollars or British
pounds or some other major country's currency. This fixed rate system was
thought to facilitate international trade, global capital flows and hold
inflation in check. Inevitably, however, there would be shocks to the international financial
order, with exchange rates getting out of alignment with economic fundamentals.
It was at this point that the IMF would step in and help restore order.
To do this, the IMF was given a large fund of capital, including more than
100 million ounces of gold. It loaned funds to nations experiencing currency
problems in return for adopting measures that would stabilize the situation. But in 1971, the era of fixed exchange rates collapsed, the result of
worldwide inflation. Since then, the major currencies of the world have
floated, their value set not by government fiat but by market forces. As
a result, the IMF's fundamental reason for existence suddenly disappeared.
With fixed exchange rates gone, there was really nothing for the IMF to
do. As former Secretary of State George Shultz recently remarked, "The
IMF has more money than mission." Rather than go out of existence, the IMF found new things to do. It soon
got a new lease on life with the growing Third World debt problem. The IMF
simply shifted its focus away from maintaining stable exchange rates to
helping nations get out of balance of payments problems. Now, most of the
IMF's loans are to developing countries, which receive aid in return for
taking the IMF's medicine. This usually involves a currency devaluation,
higher taxes and other austerity measures that are bitterly resented, but
usually adopted, by governments with nowhere else to turn. At the end of fiscal year 1997, the IMF had about $55 billion in loans
outstanding for various financing programs. Last year, the total amount
of the IMF's loans actually fell by about $1.5 billion, as developing nations
paid back more of their previous loans than the IMF made in new loans. In
other words, the IMF is taking more out of the Third World than it is putting
in. For these and other reasons, more people are taking seriously the idea
of simply abolishing the IMF. Former Treasury Secretary William Simon is
among those suggesting this idea. At a minimum, there is no justification
for putting more of the U.S. taxpayer's hard-earned money into an institution
that has outlived its usefulness. |
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