One key issue discussed was the future of the International Monetary Fund. Robert Shapiro of the U.S. Department of Commerce; Charles Wolf of the RAND Corporation; and Ian Vásquez, director of Cato’s Project on Global Economic Liberty, discussed the IMF’s plan to forestall economic crises with its Contingent Credit Line. Shapiro argued that the CCL will be structured to help countries reduce their vulnerability to contagion. Wolf disagreed, saying the CCL will result in countries’ seeking to qualify for access to credit by blaming the possibility of contagion on other countries. Vásquez said the CCL will increase moral hazard by providing bailouts to countries before a crisis occurs. He also questioned whether we should trust the IMF to make the right decision, considering its history of failing to prevent crises.
The conference drew attention to the ways some countries were able to fend off contagion, which the IMF viewed as inevitable. William McGurn of the Wall Street Journal contended that Asian countries that allowed companies to go bankrupt were better positioned to respond to the economic crisis than were other countries. Byeong‐Ho Gong of the Korea Center for Free Enterprise argued that Korea’s problems stem from the close relationship between the government and the financial sectors. Unless that relationship is changed, Gong said, financial institutions will continue making loans to credit risks. Martin Krause of the Graduate School of Economics and Business Administration in Buenos Aires said that tax reform, further dollarization, and deregulation are needed. Andrei Illarionov of the Institute of Economic Analysis in Russia said that it is a myth that Russia has trouble collecting taxes; instead, the problem is that the government takes in too much money.
The IMF’s role as a “lender of last resort” was another key issue. Onno de Beaufort Wijnholds of the IMF argued that the fund should return to its core function of being an indispensable lender. He contended that there is a “middle ground” between the IMF’s being the lender of last resort and being abolished. Lawrence White of the University of Georgia said there may be times when a lender of last resort is necessary but that the lender shouldn’t be a government agency. Brink Lindsey, director of Cato’s Center for Trade Policy Studies, said that the world is struggling, not against the invisible hand of market competition, but against the continuing influence of the dead hand of a failed statist past. Lindsey said that the move to globalization is a recognition that centralized state control has failed.
Frank Gavin of the University of Virginia said that myths have led some policymakers to call for a return to the Bretton Woods system, which, Gavin opined, was “flawed from the beginning.”
The conference, organized by Cato’s Project on Global Economic Liberty, can be viewed with RealPlayer on Cato’s Events Archive page.
This article originally appeared in the September/October 1999 edition of Cato Policy Report.