International Monetary Fund meddling proves to be counterproductive
Massive loans hurt the countries they are supposedly helping

The newest edition of the Cato Journal (vol. 19, no. 1) taps a timely issue in asking if the International Monetary Fund is a necessary institution. In the lead article, "Is There a Need for an International Lender of Last Resort?" Anna J. Schwartz of the National Bureau of Economic Research examines the failings of the IMF.

"Every country that has been a recipient of IMF loans has suffered a severe decline in output, punishing high interest rates, and accelerating inflation, despite the loans," Schwartz writes. "The loans are massive, but the IMF has never revealed how it determines their magnitude, nor how the recipient has expended them. It may not even know how the money was spent. . . . The IMF is a paternalistic institution whose staff assumes that it possesses wisdom superior to that of the officialdom of the countries to whom it is lending."

Economic woes are also addressed in "The European Monetary Union: A Political Time Bomb," by Lorenzo Bernaldo de Quirós, director of economic studies at the Círculo de Empresarios in Madrid. "On the positive side, the European Monetary Union represents the consolidation of a culture of macroeconomic stability that is very important, in particular, for countries such as Spain and Italy that have lacked that for so long," he writes. "Nonetheless, the establishment of a single-currency area entails a risk if its member countries decide to implement protectionist barriers and capital controls as a substitute for the tax adjustments and appropriate reforms in the labor market institutions necessary to maintain fiscal balance and reduce unemployment. Those dangers have become more acute with the political changes in Germany. The new government shows much less financial and monetary orthodoxy than its predecessor, thus increasing the doubts that Euroland will enjoy high levels of stability."

This new issue of Cato Journal also includes articles on enterprise and biodiversity, public school spending, the labor market status of women, the employment prospects of welfare recipients, and more.

Cato Journal (vol. 19, no. 1)