-
Restrain the Abusive Administative State
May 22, 2013 | 24 comments
-
Delivering Serbs to the Wolves
May 21, 2013 | 29 comments
-
The Perils of Intervention in Syria
May 7, 2013 | 37 comments
-
America on Welfare
April 25, 2013 | 46 comments
-
Thursday Is Tax Freedom Day
April 17, 2013 | 5 comments
Special Report
Shut Down the Wasteful IMF
Dominique Strauss-Kahn, or who will replace him, are minor matters compared to scandal of the IMF’s very existence.
The International Monetary Fund often is in the news, but rarely in the U.S. That changed when Managing Director Dominique Strauss-Kahn ended up at New York’s Rikers prison charged with rape. Strauss-Kahn’s travail well symbolizes the IMF: an institution of entitlement and privilege focused on mulcting the rest of us.
The leading contender to replace Strauss-Kahn, who resigned while proclaiming his innocence, is French Finance Minister Christine Lagarde. The board plans to make its selection by June 30, but instead should shutter the organization.
The Fund was one of the “Bretton Woods” institutions created in 1945. Its purpose was to stabilize exchange rates. When the system of fixed exchange rates collapsed in 1971, the IMF effortlessly found a new job, promoting development. The Fund created a generous dole for Third World governments.
After Communism fell, such east European nations as Romania, Ukraine, and Hungary became major borrowers. The IMF now is a leading lender to Greece, Ireland, and Portugal. In fact, before his arrest Strauss-Kahn was heading back to Europe for talks on expanding the Greek bailout arranged last year.
The IMF is funded by its member governments, which also back its large-scale borrowing. The organization has steadily increased lending over time. In 1989 the IMF pressed to double its capital which, explained Managing Director Michel Camdessus, would be “the cheapest way for taxpayers in the richer countries to come to the aid of the poor.” In 2009 the heavily indebted industrial states agreed to an immediate $100 billion increase in Fund resources in response to the financial crisis and approved the objective of trebling the Fund’s $250 billion in resources. (The organization has a multitude of “credit facilities,” credit “arrangements,” and “credit lines.”)
The IMF famously imposes policy changes as part of its lending programs. Unfortunately, there is no evidence that the organization has effectively promoted economic growth. Even its advocates can point to few successes.
Two decades ago Richard Feinberg and Catherine Gwin concluded that “the record of IMF-assisted adjustment efforts in Sub-Saharan Africa is discouraging.” Back before he thought foreign aid could end poverty, economist Jeffrey Sachs warned that most agreements “are now honored in the breach.”
The Fund spent decades subsidizing the world’s economic basket cases, including Egypt, pre-reform India, Sudan, pre-reform Turkey, communist Yugoslavia, Bangladesh, Guinea-Bissau, Pakistan, Zaire (now Congo), and Zambia. None advanced because of Fund programs. In contrast, expanding private investment and trade offered development opportunities for countries that adopted sensible economic policies.
Now the IMF has become the bailout king. There always were better alternatives to throwing cash at countries suffering economic and financial crashes: bankruptcies, debt reschedulings, and forced work-outs. The common panic fomented by the Fund was rarely justified. Former Treasury Secretary and Secretary of State George Shultz opposed an earlier proposal to increase IMF resources: “typically crises are overrated in prospect and used to justify things that have big, big downsides, and in which the downsides are not quite seen at the time the intervention is being proposed.”
However, the organization gloried in finding another purpose. Mexico became the Fund’s biggest borrower. Then there was Asia.
But the financial disasters stopped. Noted the Economist magazine in 2006: “What is a firefighter to do when there aren’t any fires? The IMF spent 1994-2002 dashing from one financial conflagration to the next. But the sirens have been silent for some time. As a result, the fund’s budget is shrinking and the moral of its staff is sinking.”
No longer. Europe is in crisis, with Greece now Borrower No. 2 — and likely headed to No. 1 with another bailout in the offing.
Alas, the IMF continues to record few hits. There are several reasons for the organization’s lack of success.
In setting loan conditions, the Fund often focused on narrow accounting data, causing its advice to have perverse consequences — such as raising taxes rather than cutting bloated spending. Moreover, reform is a process. Without political support, which is less likely when the policies appear to be imposed from outside, governments are unlikely to move forward and undertake even more politically painful reforms. As a result, IMF programs often occur in policy environments that remain terribly distorted in other ways.
Even when the organization pushes for sensible reform, it has rarely proved to be a tough taskmaster. Only a minority of borrowers reduced their need for aid; many nations were addicted to Fund programs for decades. New programs routinely followed old, failed ones. For example, Peru negotiated seventeen different programs between 1971 and 1977. Economist John Williamson pointed to the problem of the Fund feeling pressure “to lend money in order to justify having it.”
About the Author
Doug Bandow is a senior fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is the author and editor of several books, including The Politics of Plunder: Misgovernment in Washington (Transaction).
Letter to the Editor View all comments (13) | Leave a comment
More Articles by Doug Bandow
More Articles From Special Report
http://spectator.org/archives/2011/06/27/shut-down-the-wasteful-imf
Follow us:
ADVERTISEMENT
SPONSORED LINKS
FLASHBACK TO: 1995
-
Pope Culture
A man of faith in a godless age is hitting Americans where it hurts.
-
Why the GOP Does Not, Like, Totally Suck
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
-
Dames at Sea
-
In the Absence of Guns
In Britain, defending your property can get you life.
-
The Metaphysical Martini
-
Counting the Costs of Clintonism
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
-
Chuck McHagel
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
-
The Legacy of Old John and Mother Fresh-Roasted
-
It’s the Best Time of the Year
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
-
The Bush Crack-Up
Was the President done in by the economy, or by the politics of the economy?
Clip of the Day
ADVERTISEMENT
Ken (Old Texican)| 6.27.11 @ 6:50AM
Doug,
you know, it is such an outrageous money-pit; how can rational people support it?
Sombodies are being "paid off" big time.
Mike Hawk| 6.27.11 @ 8:04AM
It would appear this 'fund' is largly run by French Socialists. That enough reason to nuke it.
Clint| 6.27.11 @ 8:15AM
Dr.Ron Paul:
"The IMF provides a perfect illustration of the both the folly of foreign aid and the real motivations behind it. The IMF touts itself as a bank of sorts, although it makes “loans” that no rational bank would consider — mostly to shaky governments with weak economies and unstable currencies. The IMF has little incentive to operate profitably like a private bank, since its funding comes mostly from a credulous US Congress that demands little accountability. As a result, it is free to make high-risk loans at below-market interest rates. "
lydia | 6.27.11 @ 8:46AM
I am a 28 years old doctor, mature and beautiful.and now I am seeking a good man who can give me real love , so i got a username Andromeda2002 on--s'e'ek'c'ou'ga'r.c óm--.it is the first and best club for y'ounger women and old'er men, or older women and y'ounger men,to int'eract with each other. Maybe you wanna ch'eck 'it out or tell your friends!
The IMF touts itself as a bank of sorts, although it makes “loans” that no rational bank would consider — mostly to shaky governments with weak economies and unstable currencies.
USSAlabama| 6.27.11 @ 9:08AM
It was reported as early as the first week in June that Hillary would run the IMF.
The story was that she wanted the job and would leave office for it. Something she now denies.
A. C. Santore| 6.27.11 @ 11:22AM
What? And stop international wealth redistribution? Shocking.
Seriously, we don't have to "nuke" the IMF - just stop our payments into it. Permanently.
cicero| 6.27.11 @ 12:10PM
As is becoming the "usual" in these so called monetary crises, the workers of the world are being conned into bailing out the bankers once again. All of these countries who are in trouble are so because the bankers have continued to loan them money, when they know there is not enough growth to pay off the bonds. They rely on the governments of the producing countries to bail them out, so that the financial system "will not fail". For once, I would like to see at least the government of the U.S. tell them to eat their bonds. That would inject some discipline into the world banking system. Ever since Clinton bailed out the large American banks in the Mexican deal of the early "90s, it has taken on all the appearances of a game.
Enough is enough. The free market system means that even the bankers have the freedom to win and LOSE. If they lose a few times, and can't explain it to their shareholders, maybe there will be consequences. As it is, the only ones who suffer are the poor taxpayers, while the bankers hide for a while at their mansions in Boca, or the south of France, and come out when all is forgiven, and sadly, forgotten.
Oldefarte| 6.27.11 @ 1:55PM
Great article, Doug! Why are we giving our hard earned taxpayers' income to these countries in foreign aid ["...If the IMF was only spending other people's money, then the U.S. might remain an amused bystander. But as the largest single contributor (16.67 percent, to be exact) to the Fund, American taxpayers are on the hook for a share of that organization's lending, which ran more than $90 billion last year..."]? Why do we give Egypt $2billion to finance economic building programs due to the effects of these middle east uprisings, when we have 10+% unemployment, a huge defecit/debt, a real estate crisis etc? Why do we give foreign aid to Pakistan when its intelligence unit was protecting UBL [who was responsible for 3000 American death on 9/11]? Why? WAKE UP AMERICA, and vote Republican in November of next year.....PLEASE!!!!!!!!!!!!!!!
JohnC| 6.27.11 @ 2:32PM
Great Article – about time a conservative is exposing the IMF as a socialist global financial monster.
The first Bush Tarp bailout of the global banks and investment firms has continued on steroids under Obama, especially Helicopter Bens spending monopoly money to once gain prop up Wall Street. Now the IMF with our tax money wants to once again bailout socialist Greece and in turn bailing out the too-big-to-fail multi-national banks, that have invested in European banks exposed to Greek risky debt. This convoluted & crooked financial house of cards will soon implode and it will not be pretty.
Meanwhile, the hapless GOP presidential field is stuck on the mantra to only cut spending, reduce business regulations and lower taxes – all good traditional conservative ideas but they are missing the bigger picture. These candidates are mute on the IMF money machine, the anti-American WTO, a bought-off Fed-gone-wild, and giving our vital industry to China and Third World countries.
Alas, the Republican Party is in the pockets of big business and the shifty banksters, who are not conservative at all and in fact are run mostly by lefty socialists and libertarians. Multi-National corporations are not friends of Main Street or We-the-People. I believe that GM used taxpayer bailout money to build cars in South America – one of many examples of economic globalism (International socialism) run amok.
The GOP should propose legislating and enforcement for much stricter laws on these gambling banks and to reenact the Glass-Segal wall to separate brokerage firms from the corner bank
As the author states we ought to pull out of the IMF but also the WTO, U.N., NAFTA, and the rest of the free trade giveaways. And we then need to reign in and audit the Fed and think about going back on the gold standard. In a word we need to once again become an Independent and self-reliant country rather then one held hostage to foreign powers and events.
Oldefarte| 6.27.11 @ 4:35PM
You make some great points in your arguments, but your partisaned attack upon Republicans is misguided. True, they have their faults, BUT the true target is/should be the Democratic Party instead. Much of this excrement began with the CRA of 1977 at the hands of the socialists-Democrats successfully establishing the beginning political agenda of AFFORDABLE HOUSING. Republicans have also partially too often gone along for the political ride of compromise, but again, its the Democrats who are [and have been] the instigators of this socialism political agenda of governmental regulation-force for establishment of benefit-giveaways to the financial indigents of this country. The current economic/financial problems of this country can can remedied over time by means of the American voters intelligently [if possible] wising up, realizing the huge mistake they made on 11/4/08, and voting strictly Republican in November of next year. Thereafter if/when these Republicans prove inept or at fault, then thereafter their defeat/replacement with other Republicans will be the order of the day!!!!!!!!!!!
Ore Gone| 6.28.11 @ 12:34AM
I hear ya. If we voted in small government Republicans for the next 20 years we probably still wouldn't have unravelled the mess we are in. Every where I look it is another mess. We are being regulated, taxed, user fees, service fees and you name it to the point we are suffocating under the load. We could throw out 2/3 of the laws on the books and there would still be too many. What a mess! Along with a debt limit we could use a law limit.
Occam's Tool| 6.28.11 @ 1:43AM
Defunding the IMF and The UN would be a good way to start.
weddingdresses | 6.29.11 @ 5:27AM
Great article, Doug! Why are we giving our hard earned taxpayers' income to these countries in foreign aid ["...If the IMF was only spending other people's money, then the U.S. might remain an amused bystander. But as the largest single contributor (16.67 percent, to be exact) to the Fund, American taxpayers are on the hook for a share of that organization's lending, which ran more than $90 billion last year..."]? Why do we give Egypt $2billion to finance economic building programs due to the effects of these middle east uprisings, when we have 10+% unemployment, a huge defecit/debt, a real estate crisis etc? Why do we give foreign aid to Pakistan when its intelligence unit was protecting UBL [who was responsible for 3000 American death on 9/11]? Why? WAKE UP AMERICA, and vote Republican in November of next year.....PLEASE!!!!!!!!!!!!!!!