- The Washington Times - Friday, February 16, 2001

As much of the mainstream media would have it, the principal reason the global economy doesn't succumb to endemic, cyclical financial chaos is the rehabilitating, counter-apocalypse measures taken by the International Monetary Fund (IMF). The Bush administration is challenging this retrograde but widespread notion and naturally getting attacked for it.

In press interviews recently, Treasury Secretary Paul O'Neil questioned the wisdom of some IMF bailouts, particularly the ill-fated 1998 loan to Russia, some of which has allegedly emerged in secret Swiss bank accounts. Despite the IMF loan, Russia's currency, the ruble, took a nosedive and the Russian government defaulted on its debt, triggering another crisis in Brazil which sent shock waves around the globe. "Most observers would say what happened in Russia was … not a surprise. Have you ever tried to do business in Russia? Ever try to write an enforceable contract?" said Mr. O'Neil in an interview with The Washington Post.

Indeed, Russia's crisis was the result of the country's fiscal mismanagement and endemic, policy-driven problems. The IMF failed to prevent or predict it. Investors jumped into Russia fully expecting the IMF to bail out the country, and therefore themselves, at the first signs of trouble. These investors bet on the likelihood of an IMF rescue, not on the long-term prospects of the country. Once they made their profits, they hightailed it out of Russia, sending the country into a tailspin. And just how did these investors get the idea the IMF was in the bailout business for mega-rich creditors? Why, from the 1995 Mexico and 1997 Asian bailouts, naturally.

So these rescues have actually made the abrupt influx and exodus of capital quite severe, contributing to, rather than alleviating, long-term economic turmoil. Mr. O'Neil has wisely proposed that the IMF raise its concerns regarding potential crises publicly, thereby pressuring governments to act pre-emptively.

In an editorial, The Washington Post accuses Mr. O'Neil of echoing some of "the unhelpful hostility to international financial bailouts voiced by Republicans in Congress." However, judging from the outpouring of humanity in Seattle and Washington streets, opposition to these type of bailouts doesn't come exclusively from Republicans in the hallowed halls of the legislature.

As a parting shot, The Post maintains that not doling out bailouts "increases both the human toll of the crisis and the likelihood that panic will spread to other countries." But the editors at the paper conveniently forgot that while bailouts lessen the toll of crises for ultra-wealthy humans, the poor and middle class suffer the brunt of the tight monetary conditions that the IMF invariably requires.

Although IMF loans can buy short-term stability, they have also helped generate increasingly severe crises that require bailouts more expensive than the last. The Bush administration should be commended for challenging some mainstream misperceptions regarding the institution. One hopes it will back up the rhetoric with concrete reform recommendations for the IMF.

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