Truth or Consequences

This article appeared in Forbes on April 2, 2001.
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Public companies occasionally dissemble or even lie. When they do, the perpetrators risk troublewith the law. Just ask the former chairman and vice chairman of Cendant. Governments are heldto a different, lower standard. Indeed, although dissembling and outright lying are frowned upon,these sins usually go unnoticed and unpunished.

Take NATO's operations in Kosovo. After the 78-day aerial bombardment in 1999, the chairmanof the Joint Chiefs, General Henry Shelton, displayed colorful charts to show the public thatNATO had taken out 120 tanks, 220 armored personnel carriers and 450 artillery and mortarpieces. Later, a suppressed Air Force report emerged with the following real count: 14 tanks, 18armored personnel carriers and 20 artillery pieces.

The Kosovo hocus-pocus is nothing new and hardly confined to the military. Official economicdata have long been rife with chicanery. The much-ballyhooed Marshall Plan, which deliveredU.S. aid to western Europe after World War II, is a case in point. One of the plan's top Europeanadministrators is on record as saying: "We shall produce any statistic that we think will help usget as much money out of the U.S. as we possibly can." You should be skeptical about whetherthe Marshall Plan's success was all that it was advertised to be.

Central banks in particular have a long history of hiding information and, yes, lying. In the 1930sand 1940s Great Britain suppressed and Nazi Germany misstated their respective gold reserveholdings to mislead the world about their monetary strength.

In more recent times central banks of emerging-market nations have been the flimflam artists,making their positions look better than reality. The National Bank of Ukraine in 1996 and 1997overstated its net foreign reserve position, thus allowing Ukraine to con the InternationalMonetary Fund into sending it money. The Bank of Indonesia illegally lent billions of dollars tocommercial banks, which put up no collateral. I uncovered the latter problem when I wasadvising then-President Suharto in 1998. An official audit later found the practice had torn ahuge hole in the Indonesian central bank's balance sheet and left the bank insolvent.

The IMF, which keeps a lot of these nations afloat, demands current and accurate disclosure ofcentral banks' conditions. After all, they are the purveyors of money. And financial marketsworldwide operate in real time. A months-old paperbound report is useless. So what better wayis there for a central bank to open its books than on the Web?

Alas, full and timely disclosure via the Internet is beyond a lot of the banks. This I discoveredafter conducting an exhaustive search for the Web sites of the world's 174 central banks. Only123 had a site. The other 51, ranging from the central bank of Afghanistan to that of Yugoslavia,tell us nothing. These countries may be poor, but poverty is no excuse for not setting up aminimal, inexpensive Web site.

The heart of central-bank disclosure is the balance sheet, vital for determining what coursemonetary policy is following. It shows monetary liabilities (the monetary base) on the right-handside and their asset counterparts (domestic government bonds and foreign reserves) on the left.

While most sites do contain balance sheets, many are not current. And except for countries withcurrency boards (independent bodies that fix exchange rates), which have no monetary policiesand thus nothing to hide, balance-sheet formats are literally all over the map. You need to beSherlock Holmes to interpret the financials of a lot of these banks. Only 63% of the sites are inEnglish, the language of the world's major financial markets. Central banks clearly need theequivalent of the private sector's International Accounting Standards Committee to set rules.

The obvious conclusion is that central banks with no Web sites, or those that tell little, havesomething to conceal. The IMF should decree that any country without a current balance sheetdisplayed in English and in orthodox fashion on a Web site does not qualify for IMF support.

Your taxpayer money is funding this international bail-out organization. Demand someaccountability.