With the House Banking Committee aaproving legislation by a 40-to-9 vote on March 5, the Republican Congress is on the verge of rubber-stamping Bill Clinton's request for a massive $18 billion infusion of taxpayer dollars into the United Nations of international lending: the International Monetary Fund. By so doing they are ignoring the pleas of the entire conservative movement to stop funding this self-serving and corrupt international bureaucracy. Jack Kemp and Pat Buchanan--who often disagree on other global issues--have both attacked the IMF bail-out as counter to the U.S. national interest.
They are absolutely right. We now have 30 years of evidence documenting that IMF bailouts have actually promoted poverty and delayed market reforms in the nations receiving the Fund's so-called "assistance."
Will someone please tell this to Speaker Newt Gingrich. Gingrich not only supports refinancing this multi-billion dollar foreign aid boondoggle, he is lobbying behind the scenes to corral Republican votes for the Clinton administration request. Here we have the makings of yet another high-profile betrayal of the conservative movement by the 105th Congress.
Rather than pumping more funds into the IMF, the proper course of action would be for the GOP to once and for all close down this corrupt agency. As former Treasury Secretary William Simon has noted, "IMF policies are typically ineffective and even counterproductive."
Fortunately, Senator Lauch Faircloth (R-NC) is heroically leading the opposition to the IMF bailout. Faircloth notes that IMF funding is corporate welfare that subsidizes U.S. banks and Fortune 500 companies who have foolishly invested and lent in economically unstable nations. As Faircloth puts it: "With the IMF we have privatized the returns on investments abroad, but socialized the risks." Exactly. This is precisely how the savings and loan crisis developed in the late 1980s.
Faircloth is up against a vast, well-funded corporate welfare/foreign aid establishment. Supporters of the IMF include a who's who of corporate and political elites from the left and right. The corporate community which is a direct beneficiary of IMF bail-out funds has started a massive P.R. campaign to save their welfare checks. Last month General Electric, General Motors, IBM, ITT, Exxon, Chase Manhattan, BankAmerica, Time Warner, Times Mirror, and dozens of other firms with their snouts in the federal trough published full two page ads in both the New York Times and the Washington Post (this costs roughly $200,000) demanding Congress to approve funding for the IMF and the United Nations. The empire is striking back.
Among the gold cuff-linked corporate lobbyists for IMF funding are such Republican heavy hitters as: James Baker, Henry Kissinger, Lynn Martin, Bob Dole, Nick Brady, Gerald Ford, and George Bush. Now there's a convincing cast of characters! Last week Kissinger traveled to Asia and gave a speech attacking the U.S. for not yet approving IMF funds. What a patriot!
These statist elites promote increased funding for the IMF even though it has a dreadful track record of promoting free markets and economic growth. As Johns Hopkins economist Steven Hanke recently noted, "Few nations graduate from IMF emergency loans. Most stay on the IMF dole for years on end." One recent Heritage Foundation study found that of 137 mostly developing countries that have received IMF rescue funding from 1965-1995, only 44--or less than one-third--have graduated from needing assistance. Incredibly, 81 countries have actually seen their dependence on the IMF grow over time.
Republicans in Congress must not buckle under to the foreign aid lobby. Private capital markets, not government to government welfare checks, are the best way to discipline the public policies of sick economies.
The IMF routinely encourages donor nations to raise taxes and/or spurn tax rate reductions; devalue the currency; delay market based regulatory and banking reforms; and prop up corrupt regimes who base their economies on a system of "crony capitalism" that often created the crises in the first place.
Last year IMF officials issued an economic report urging the United States not to cut taxes. Fortunately, U.S. policymakers can ignore the snake oil the IMF is selling; often third world nations, seduced by the Fund's "free money" cannot.
Amazingly, in its 1997 report, the IMF issued a glowing analysis of the economic policies of South Korea and Thailand. Even a few months before the currency crisis hit, the IMF officials never saw the storm approaching.
The IMF intensifies international currency crises through the moral hazard problem of its lending policies. The Asian debt crisis, the Hoover Institute's Alvin Rabushka has stated: "was in large part a result of the IMF's catalyst role." The IMF's resources are sufficient to "induce private banks to provide huge loans to the governments of developing countries by removing the risk of default."
Former Fed Governor Lawrence Lindsey believes the Asian currency crisis was worsened by the IMF Mexican bailout. "Mexico set up Asia," he says. It sent signals to international investors who loaned money in Asia, that their investments carried a U.S. government guarantee. Lindsey maintains, "Outside of Washington, no one takes seriously the story that the Mexico bailout was a success." Investment bankers on Wall Street talk about how they actively promoted loans to asia once the Mexican rescue was in place."
Supporters of the IMF bailout are incapable of articulating how this international agency promotes the U.S. national interest. The foreign aid establishment insists that IMF funding is necessary to get East Asian nations back on their feet. But as the Figure shows, the 5 most afflicted Asian nations--Indonesia, Malaysia, Thailand, Singapore, and Korea--are simply too economically inconsequential to matter much to the U.S. economy. Indonesia, for example, accounts for less than 1 percent of U.S. imports and exports. It could drop into the Pacific Ocean and not even cause the U.S. markets to sneeze. In total, these five nations account for about 8 percent of U.S. imports and exports.
The only nation of great trading significance to the U.S. in this region is Japan. About 12 percent of our imports come from Japan; 7 percent of our exports go to Japan. But Japan has already been in a depression for the past three years. This hasn't prevented a three-year high-growth bull market in the U.S.
Republicans in Congress must not buckle under to the foreign aid lobby. Private capital markets, not government to government welfare checks, are the best way to discipline the public policies of sick economies. If the nations of East Asia cut taxes, reform their banking systems, clean up their political systems, deregulate, and privatize, they will get well. If they don't, they won't. The best way for Congress to promote the welfare of the workers in Asia--and those in the U.S.--is not to refinance the IMF, but to close it down for good.