November 15, 1999

by Peter J.M. Orvetti

Camdessus's Curtain Call
Spending Green
WTO Draws Near

Camdessus's Curtain Call

International Monetary Fund Managing Director Michel Camdessus will leave the agency next February, Reuters reports. Camdessus claimed that the IMF's completion of efforts to end the Asian financial crisis has made this a good time to change leadership. "My friends, this is the right time. The world economic outlook allows us to anticipate favorable trends for the world economy. I see it as my duty now to suggest that you take advantage of these favorable circumstances to select my replacement," he wrote in his letter of resignation.

"Kill the IMF", Doug Bandow advises in a 1998 commentary. "The IMF was created in the aftermath of World War II to help countries meet balance-of-payments shortfalls. When that original role disappeared along with fixed exchange rates in the early 1970s, the fund showed an agile instinct for self-preservation by shifting to the economic-development business. Persistent failure in that new incarnation didn't stop the IMF from expanding into the markets created by the collapse of communism. Now the fund has taken another step and become the bailout king… The real test of any aid agency is whether its clients move from dependency to self-sufficiency. Bryan Johnson and Brett Schaefer of the Heritage Foundation figure that in the end, more than half of the IMF's borrowers between 1965 and 1995 were no better off than when they started. A third were actually poorer. Almost all were deeper in debt. Eighty-four countries have been borrowing from the fund for at least a decade. Although the IMF sets conditions for its loans, it usually focuses on narrow accounting measures -- currency devaluations, for example -- that often bring borrowers' economies to a halt."

Ian Vásquez offered similar sentiments in testimony before Congress in 1998: "The IMF suffers from a set of internal tensions in its functions and operations that additional funding from the United States and other donor nations will not resolve and that will be difficult, if not impossible to resolve even without new funding. Those strains include the IMF's demands that countries be more open versus its resistance at efforts to increase its own transparency; the IMF's dual role as an international surveillance body versus its role as an agency to prevent the outbreak of crises; the IMF's bailout function versus its claims to minimize or eliminate moral hazard; and the Fund's insistence on conditionality to recipient nations versus its reluctance to accept any conditions on its own performance when asking for more money from donor countries… The IMF in theory makes short-term loans in exchange for policy changes in recipient countries. This has not, however, helped countries move to the free market. Instead the Fund has created loan addicts as review of its lending reveals. Eleven nations have been relying on IMF aid for at least 30 years; 32 countries had been borrowers for between 20 and 29 years; and 41 countries had been using IMF credit for between 10 and 19 years. That is not evidence of either the success of the Fund's so-called conditionality or the temporary nature of the Fund's short-term loans."

Spending Green

The Clinton administration has proposed a four-year program to purchase more lands for federal use and conservation, AP reports. Republicans have offered about two-thirds of the money President Clinton wants for the Interior Department and other land and cultural programs as part of the budget negotiation process. Clinton had previously proposed a lands legacy program that would spend $500 million in 1999; he wants to nearly double that amount by 2003. But Senate Appropriations Committee Chairman Slade Gorton (R-Wash.) criticized the plan, saying, "We're not going to create a new entitlement."

Jerry Taylor wrote in the commentary "The Greening of the GOP", "There are a whole host of reasons why going on a land-buying spree is a bad idea. First, the federal government can't even competently manage what it already owns. Four federal land agencies alone have identified a $12 billion backlog in maintenance and necessary infrastructure expenditures, but politicians win more green votes for buying land than they do for managing it well. Moreover, a mountain of studies from environmentalists themselves document the federal government's disastrously misguided ecological practices, practices that typically reflect institutional shortcomings, not poor policy decisions. Second, the federal government already owns 50 percent of America's softwood timber, 12 percent of the ranch lands, 30 percent of the coal reserves, a large but unquantifiable amount of oil and gas reserves, 90 percent of the copper reserves, 80 percent of the silver reserves, and almost 100 percent of the nation's nickel. University of Colorado law professor Dale Oesterle observes that this 'puts the federal government at the core of our national market system, affecting the price in nationally significant markets and a myriad of down-stream products.' Its economic management of those resources is so poor that the federal government somehow manages to lose about $2 billion a year on land worth nearly $200 billion." The 1988 Cato Policy Analysis "Inside Our Outdoor Policy" also addressed federal land ownership.

WTO Draws Near

United States Trade Representative Charlene Barshefsky and National Economic Council Director Gene Sperling traveled to China for two days of talks with Chinese leaders to try to finalize an agreement to bring China into the World Trade Organization, AP reported. Negotiations between the United States and China have been marred by a dispute over market-opening concessions proposed by Premier Zhu Rongji last April. The United States wants China to accept tariff cuts and increased access to markets in agriculture, telecommunications and financial services.

In the recent commentary "The Right Way to Get China into the WTO", Mark Groombridge writes, "Most agree that WTO membership for China is beneficial not just for China but for the world trading community at-large. Those who oppose China's membership in the WTO are mostly heads of state-run monopolies in China or heads of powerful labor unions in the United States. For China, WTO membership will help bolster the position of Premier Zhu Rongji, who faces the difficult task of keeping China on the reform path. For other countries, it will help integrate China more peacefully into the international community as well as open up China's market to increased foreign competition… there is a right way to get China into the WTO. That is for the world trading community to secure not only firm commitments from China on market access, but commitments on the methods for evaluating China's progress as well. Any agreement with China should have clearly delineated methods on how the WTO will monitor China's progress when inevitable conflicts arise. The key word for the WTO should be 'transparency' so that foreigners understand clearly the myriad of sometimes conflicting administrative laws at work in China.

"While the West rightly holds Premier Zhu Rongji in high esteem, they are right to be skeptical of his ability to deliver on any WTO package he puts forward. The reason is that Zhu faces enormous resistance from certain industrial ministries and local officials who have designed laws and regulations to serve their own narrow interests. Moreover, in some cases, there are overlapping jurisdictions for economic affairs, leading to what the Chinese refer to as 'too-many-mothers-in law'. Under the weight of such an onerous bureaucratic system, it becomes too easy to keep foreigners at bay and markets closed. A focus on transparent institution building in China is not only beneficial for foreign companies doing business in China, but for the WTO as well. Such a commitment from China to focus on transparency and administrative reform will be crucial in resisting pressure to 'manage' China's trade upon accession. Some, for example, are advocating a policy of forcing the Chinese to meet certain import targets. The WTO tried this policy with Poland-it failed. Ironically, one reason it failed was because in some years Poland would have exceeded the target and imported more than they were obliged to do. In light of the target, however, it gave protectionists an excuse to restrict trade and not let the market function as it normally would have done."

Beginning November 30, the most important international trade meeting ever held on U.S. soil will convene in Seattle. Two weeks prior, this Wednesday, November 17, a distinguished lineup of experts will be meeting at an all-day event at the Cato Institute, "Seattle and Beyond: The Future of the WTO" to outline U.S. objectives on the eve of the new WTO round. Speakers include Deputy U.S. Trade Representative Susan G. Esserman.