The International Monetary Fund interferes too much in the domestic politics of the countries it seeks to assist. What's more, the IMF's policies don't generate prosperity or alleviate poverty. That's what a bipartisan congressional commission concluded recently. Unfortunately, the panel's prescription was misguided: Reinvent the IMF, yet again.
The only cure for the IMF's ills is to pull the plug on that internationalbureaucracy. Why? Look no further than the disaster it wrought in SoutheastAsia. With the collapse of the Thai baht in mid-1997, the entire regionentered an economic maelstrom. The IMF's remedy: floating exchange rates.
We were told that this elixir would bring prosperity. Indeed, when Indonesiafloated the rupiah in August 1997 the IMF's deputy managing director,Stanley Fischer, confidently proclaimed that this move, "in combination withIndonesia's strong fundamentals, supported by prudent fiscal and monetarypolicies, will allow its economy to continue its impressive economicperformance of the last several years." (Fischer has since been elevated tothe post of acting managing director.)
Balderdash. With the exception of Hong Kong, all the countries in SoutheastAsia allowed their currencies to float. And float they did. Downward. From the end of 1996 through December1999 the Indonesian rupiah did the worst relative to the greenback. And theother floaters suffered large devaluations, too.
Consequently, their economies took heavy hits. There's no denying that theworse the devaluation, the worse the economic devastationTrue to form, the IMF is spinning a different yarn. Its chief spokesman,Thomas Dawson, wrote an indignant defense of its Asian policies in the WallStreet Journal in mid-March. To obfuscate how the institution's wrongheadedpolicies decimated Asian living standards, he noted that South Korea'sgrowth was 10% in 1999 and Thailand's 4%. But those were only partialrecoveries from the sickening falls these economies had suffered.
I can testify firsthand how destructive--and politically driven--the IMF canbe. In February 1998 then-President Suharto, the Indonesian leader,appointed me as his adviser. To stop the rupiah's fall, I recommended thatIndonesia adopt a currency board like Hong Kong's. The markets loved it. Onthe day this proposal hit the press the rupiah strengthened by 28% againstthe dollar.
Mind you, Suharto was not a popular man with the IMF or the ClintonAdministration. Since a currency board would have stabilized the rupiah,that would have enhanced his position. So the IMF and the Administrationmounted a massive counterattack, pressuring the Indonesian government toback off the board idea.
Recently, however, I was inadvertently vindicated by none other than MichelCamdessus, the departing IMF managing director. On his retirement Camdessusboasted that "We created the conditions that obliged President Suharto toleave his job." In other words, they caused considerable human suffering inthe course of trying to accomplish a political goal.
Upon hearing this, former secretary of state George Shultz told NationalPublic Radio: "I don't think that's a function of the IMF. Look what'shappened in Indonesia--income per capita cut in half, poverty widespread,religious intolerance on the rise."
I couldn't have said it better.