- The Washington Times - Friday, January 20, 2012


The World Bank is pessimistic about global economic prospects. Last week, the bank’s forecasters projected lower growth in the year ahead for both developing and developed countries. The European economy, wracked by the continuing debt crisis, is expected to shrink 0.3 percent.

That means the World Bank’s sister institution, the International Monetary Fund (IMF), is going to be busy. IMF is looking for a staggering $600 billion in additional funds to help shore up the growing list of member countries staring at economic oblivion.

Giving more money to this institution is like handing a box of matches to a pyromanic. Doling out more cash to nations with an incurable spending problem will only deepen the debt crisis.

The expected recession in Europe will drag down global economic growth. Developing countries, including China, India and Brazil, have thus far been spared the impact of the troubles facing the United States and the continent. That could change, as the World Bank cut its growth forecast for developing countries from 6.2 percent to 5.4 percent for this year. China’s growth has dipped below 9 percent for the first time in more than two years. Investment in developing countries is down by 45 percent.

On our shores, the European mess is taking a toll. Exports to Europe fell 6 percent in November, even as overall exports grew for the year. As the recession deepens across the Atlantic, those numbers are only going to get worse.

That’s because nothing has been done to tackle the root causes of the crisis in Europe. Greece has yet to reach any kind of agreement with its private bondholders about a write-down in the face value of its debt. The IMF wants to continue throwing yet more money at Greece, even though it has failed to meet “austerity” targets as its politicians prove incapable of spending only as much as they take in.

Once the cycle of bailouts begins, there’s no end. The IMF knows this and admits medium-term needs are closer to $1 trillion. European members have so far promised $200 billion to the bailout effort. China and Brazil may commit some funds in exchange for greater voting power. The United States, currently the largest shareholder in the IMF, will almost certainly not be willing to increase funds, especially in the face of congressional Republican opposition. Some in the GOP have indicated they will try to cut $100 billion in funding to the IMF if it is used to bailout more eurozone countries.

Better yet, zero out the IMF entirely. Established in 1945 to run a fixed exchange-rate system that no longer exists, the IMF is obsolete. In the decades since it recast itself as a lender offering structural assistance, it has been a singular failure in helping the countries it sought to assist - from Argentina in the 1990s to Greece today.

The IMF is an enabler. Its promise of bailouts allows reckless countries to get away spending with abandon for longer than they would have otherwise. The only real reform will happen when the bailouts stop, allowing economic growth to return.

The Washington Times

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