- The Washington Times - Monday, July 30, 2001

Apparently, Treasury Secretary Paul O'Neill hasn't been properly instructed on the perils of speaking out of both sides of his mouth. Unlike other forms of multi-tasking, this practice is particularly hazardous for high-ranking government officials, whose statements are routinely recorded in the press.
During a recent interview with The Washington Post in London, Mr. O'Neill said it would be "perfectly appropriate" for the International Monetary Fund to lend Brazil more money because that country successfully handled the $41 billion aid package it received in 1998. In so saying, Mr. O'Neill not only contradicted his often-reiterated opposition to IMF bailouts in general, the Treasury secretary went so far as to maintain, during the same interview, that he continues to stand behind his past criticisms of IMF loans, even though in April he backed a $15.7 billion loan program to Turkey as well.
"When things really crater, the IMF rides in on its horse and throws money out, and everything's OK again," adding, "But that doesn't make any sense to me." True enough, this position is consistent with the caution Mr. O'Neill has raised in the past about bailing out countries with huge IMF-financed bailouts that taxpayers around the world have to underwrite.
Unfortunately, this rhetoric isn't consistent with Mr. O'Neill's policies. Since he has been at the helm of Treasury, Mr. O'Neill has supported IMF rescues every time economic turmoil has hit. In the case of Turkey, the capital flight that continues to wreak havoc in financial markets was born of instability in the banking sector and the slow pace of reform. In fact, when Mr. O'Neill said he supported the IMF loan program to Turkey in April, billions of IMF dollars had already proved to be counterproductive to recovery, giving Turkish bureaucrats a false sense of security and slowing the pace of reform. Now Brazilian officials, afraid that the ongoing economic turmoil in Argentina could prompt a crisis within their borders, are seeking IMF insurance against another crisis. But governments should rely on sound fiscal and fiscal policies, a strong banking sector and liberalized economy to guard against speculators' attack.
Furthermore, although Mr. O'Neill is remaining tight-lipped about whether the IMF should give Argentina fresh funds to complement the $40 billion bailout the IMF engineered and partially financed in December, it is clear that Treasury is supporting more IMF help to that country. The Financial Times reported on Thursday that Treasury Undersecretary John Taylor, after meeting in Washington with the Argentine Finance Secretary Daniel Marx, said he urged the IMF to "act rapidly" in its ongoing review of the country's finances, which will determine whether a fresh loan should be disbursed. So to date, Treasury has caved on IMF loans to Turkey, Brazil and Argentina.
This is particularly surprising, since during The Post interview, Mr. O'Neill stressed that Argentina had brought its financial problems upon itself due to poor policy. "They were the proverbial boys throwing sand in the face of the tide," Mr. O'Neill said, referring to Argentine and Turkish officials' attempts to artificially fix unsustainable currency pegs.
It has long been said that conservatives criticize IMF on ideological terms, but immediately support its rescues once in power to avoid the untidiness of prolonged crises. Mr. O'Neill is doing his part to perpetuate this myth through all his double-talk. This is unfortunate, because the market does have a way of accelerating reform, which in turn makes countries more resilient to future instability. Furthermore, holding back IMF bailouts would force high-rolling investors to renegotiate their loans with crisis-struck countries. Once IMF financing is given, though, these investors get rich rewards for their speculative investments, while the country is left deeper in debt. So rather than give lip service to the hazards of IMF bailouts, Mr. O'Neill should make policy with this wariness in mind. And, at the very least, he shouldn't express two conflicting sentiments during the same interview.

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