- The Washington Times - Monday, February 14, 2000

The managing director of the International Monetary Fund (IMF) Michel Camdessus is stepping down this week after 13 years at the institution's helm. He will surely be missed by the large financial institutions that have benefited from the hefty IMF bailouts to governments around the world. The taxpayers who foot the bills for these bailouts probably won't be quite as sad to see him go.
Mr. Camdessus' departure provides the international community with an opportunity to improve the institution .It is important, therefore, for the new head to have a reformist vision for the IMF, one with an acute awareness of the institution's mistakes. Unfortunately, the German government is lobbying hard for a candidate that doesn't quite fit that profile.
"The main problem with the IMF," said Caio Koch-Weser in an interview with The Wall Street Journal, "isn't the quality of its work. It is seen as a very contentious institution, particularly in the U.S. I don't think that can be solved by another tough-talking macroeconomist." In other words, the IMF's main problem is poor public relations. But a brief review of the IMF's history shows that there have been plenty of problems with the quality of the IMF's work. A tough-talking macroeconomist would be a welcome change.
The IMF typically doles out loans to countries that have run into liquidity problems as a result of misguided fiscal and tax policies. Fresh IMF funding allows countries to pay off the debts to which their mistakes contribute. Since creditors remain confident the IMF will help out in times of trouble, the creditors can continue to make risky investments in those same countries and make handsome returns. Speculators and banks, therefore, make a profit while taxpayers have to pay for the bailout. This is a vicious cycle.
IMF bailouts, therefore, have been growing larger while global crises have grown more severe. This has led Congress, economists and taxpayers to denounce the IMF and even call for its elimination. In the face of mounting criticism, the IMF unveiled a new policy which was first recommended by the Clinton administration, called a "precautionary line of defense" which was supposed to provide funding to countries with sound economies before crises struck. The track record here has not been good. The IMF provided precautionary lending to Russia in July 1998 and to Brazil in November 1998 two countries which were later rocked with financial turmoil so severe the global economy seemed threatened.
And no wonder. The concept of precautionary funding was fundamentally flawed. If a country is governed according to sound economic policies, it is very unlikely to need IMF funding to stave off a crisis. Mr. Camdessus got it right when he said, "In creating this facility, our dream is never to have to activate it." That dream didn't last long, though. Three months later, the temptation to lend became irresistible.
The new head of the IMF should have a keener sense of the dangers of subsidizing bad or risky economic behavior. Britain's Chancellor of the Exchequer Gordon Brown, for example, proposed last year that the IMF should require private-sector investment before it steps in with its own cash a recommendation which the White House opposed. A managing director of Mr. Brown's stature would be ideal.
Then again, there could be worse candidates than Mr. Koch-Weser. In her book "Hell to Pay," Barbara Olson suggested President Bill Clinton would likely appoint his wife Hillary to head the World Bank. Miss Olson argued that Mrs. Clinton's trips abroad have groomed her for such an appointment. Should she lose the race for a New York Senate seat, as appears quite possible, the job of IMF director might look appealing to her. That would be good news for countries counting on the IMF to bail them out of their mistakes. About that time, Mr. Camdessus might be sorely missed.

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