- The Washington Times - Saturday, August 17, 2002

United Airlines, to stave off bankruptcy, wants $1.8 billion dollars in federal loan guarantees. With the exception of Southwest Airlines, all major airlines now lose money, with United one of the highest-cost airlines incurring losses of nearly a million dollars per day. Even before September 11, the airlines struggled with overcapacity and a slowing economy. What gives United the gall to ask for taxpayer assistance?

Well, take Brazil.

Amid corporate accounting scandals, a declining stock market and a sluggish domestic economy, President George W. Bush supported an International Monetary Fund "emergency bailout" to Brazil. (The IMF consists of 184 nations. The United States controls 17 percent of the Fund.) The IMF also provided $1.5 billion in "short-term loans" to Uruguay. Just as the Clinton administration helped out major banks when they provided $20 billion to Mexico, Mr. Bush's gesture bails out Wall Street. Brazil owes Citigroup, FleetBoston, J.P. Morgan Chase, Bank of America and Wachovia more than $20 billion.

Experts properly chastise most investors who lost money when the most recent "economic bubble" broke. They tell us to diversify, maintain a long-term investment strategy, watch the fundamentals of the companies in which you invest or hire professional managers to do so. So why didn't the banks that lent money to countries like Brazil follow their own advice? And if they failed to exercise prudence in lending money, why should taxpayers bail them out?

Short-term, these banks face writing off bad loans. Their profits would decline, forcing them to change the way they do business, downsize, merge, tighten up their lending criteria, or even go bankrupt. In any case, in the long run, this weeds out poor performers, forcing survivors to improve their business practices.

This Brazilian bailout, according to the Wall Street Journal, represents yet another Bush switch. "The agreement," said the newspaper, "represents a significant shift by the Bush administration, which had previously advocated a tough-love approach toward debtor nations and refused to back further aid to Argentina after it defaulted on its loans and scrapped its IMF-endorsed economic plan late last year."

When Treasury Secretary Paul O'Neill toured parts of Africa with rock star and AIDS activist Bono, Mr. O'Neill criticized foreign aid. "In too many cases," said Mr. O'Neill, "potential entrepreneurs and investors in Africa are deterred by arbitrary laws, corrupt bureaucracies and government favoritism." Why invest under those conditions? Mr. O'Neill said entrepreneurs "have no chance for success without governments that fairly enforce laws and contracts, respect human rights and property, and fight corruption. Governments must remove barriers to trade and open their economies to investment."

During the presidential campaign, the president properly noted that economic growth goes hand-in-hand with low taxes. His treasury secretary, in Africa, argued for low regulation, limited government spending, rule of law, privatization and free trade.

What happened to Brazil? After all, Brazil, in recent years, made tremendous progress in privatization, including the construction of private toll roads. But Brazil grapples with an uncertain judiciary, government corruption, a recent energy crisis and huge public debt.

According to an article by Lawr-ence Goodman and Charles Kimball (managing directors at Globalecon LLC and Trans-National Research Corp., respectively both international investor research groups) headlined "Brazil must help itself," Brazil faces several key problems: inconsistent currency management, weak accounting and reserve management, and poor debt management.

"The U.S. Treasury and the IMF," said Mr. Goodman and Mr. Kimball, "run a big risk by disbursing more relief funds to Brazil without securing substantial policy shifts. This would simply serve to prop up asset prices and help investors, speculators and citizens of Brazil exit at favorable rates. Before others can help Brazil, Brazil must help itself."

Of the Brazilian crisis, Time magazine said, "Corruption is key. South America did need the discipline and budget austerity of U.S.-backed reforms, which freed the region from crippling hyperinflation and ushered in hundreds of billions of dollars in foreign investment. But they couldn't whip the plague of corrupt elites, absentee judicial systems and addiction to foreign capital that made Latin American capitalism as ripe for abuse and collapse as an Enron office suite."

So to the growing pile of Bush administration economic inconsistencies or flip-flops, add foreign aid "emergency bailouts." This means our limited-government/compassionate-conservative approved steel tariffs, lumber tariffs, taxpayer money for faith-based initiatives, taxpayer money for embryonic stem cell research, the most expensive domestic farm bill ever, taxpayer money for programs to "promote marriage," a campaign finance reform bill, the extension of unemployment compensation benefits despite evidence showing that longer benefits sap workers' initiative, and taxpayer money for "emergency bailouts."

Expect more. As one financial analyst recently put it, "The worry underneath it all is that Mexico might be susceptible and that's right on our doorstep." Remember that line? A billion here, a billion there, pretty soon it adds up to real money.

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