January 10, 1998 in Nation/World

Don’t Mess With Imf

Bob Deans Cox News Service
 

It’s midday at 19th and G streets, two middle-aged joggers breeze past a crowded espresso bar, lawyers and secretaries head for a take-out sushi spot nearby and an amply proportioned woman draped in a saffron sari buys roses from a sidewalk stall.

There’s little in this trendy cosmopolitan snapshot to suggest that, behind the stoic concrete walls that help frame it, edgy teams of economists are deciding the fate of millions of people in far off lands - and the billions of dollars investors have riding on them.

For this is the headquarters of the IMF, the International Monetary Fund, the global currency rescue force, the controversial institutional guardian of world capital markets, standing sentry against the most modern of threats - the risk of economic apocalypse.

“It’s the only institution in the world that has a global mandate to care about the policies of all its members,” said IMF external affairs director Shailendra J. Anjaria. “They get sick, and we try to bring them back to health.”

And woe be unto patients who disobey IMF orders, as Indonesia is learning the hard way.

Balking at the bitter medicine the IMF prescribed in exchange for putting together a $43 billion economic bailout package for Indonesia last November, the southeast Asian country was lashed this week by traders, who sent the local currency and stock market into free fall.

As if that weren’t enough, President Clinton called Indonesian President Suharto Thursday night from Air Force One to warn that a generation of economic gains in the world’s fourth most populous nation could wash away like sand if Jakarta doesn’t play ball with the IMF.

But in the age of the global marketplace, it is often investors, as much as governments, who impose order and discipline on countries in exchange for opportunity and growth. With national sovereignty being eroded, and sometimes supplanted, by the swift and often harsh verdict of currency traders and stock brokers, the IMF is quickly becoming the economic policy-setting arm of the era, a sort of “economocracy,” where dollars are votes.

“It’s not a world government - yet,” said economist Robert E. Scott of the Economic Policy Institute, a Washington think tank.

When a country’s economy is on the ropes, though, there’s no question who’s calling the shots.

In recent months, that leverage has been used to force painful restructuring in a host of Asian countries that, until last summer, were the envy of the economically developing world.

In South Korea, Thailand, Malaysia and, of course, Indonesia, the IMF has demanded stringent belt-tightening - forcing banks to reckon with shoddy loans; reducing imports and consumer borrowing; and raising interest rates to prop up currencies and hold inflation in check.

In exchange, the IMF has roped together international support worth some $105 billion to try to avert a financial meltdown in a region that accounts for roughly one-third of the world’s economic output and has, over the past two decades, accounted for a far larger proportion of its growth. The IMF aims to be a catalyst to instill confidence in private banks and other investors, in the hope that they will provide the needed funds to help troubled economies get back on their feet.

“If everybody does their part,” said Anjaria, “it works.”

The United States, which has the world’s largest economy, also is the IMF’s largest contributors. It has currently put in $38 billion of the roughly $200 billion in the IMF’s pool of available money. The United States also has the largest voice, 18 percent of the votes before the IMF.

The Asian bailout, the largest, by far, in the IMF’s history, has not gone down altogether well across the American hinterland.

Critics charge that, in a time of budget austerity at home, the United States can ill-afford to put up tens of billions of dollars to prop up economies that have failed, in part due to corruption and ineptitude.

“All that’s going to lead to is more bailouts,” said U.S. Sen. Lauch Faircloth, R-N.C., who chairs the financial institutions subcommittee in the Senate. He feels that investors have become used to the idea of IMF bailouts as a backstop against risky investments.

“Build a fund, and they will come.”

In fact, the U.S. investment community has admitted that it rushed headlong into emerging markets over the past 18 months with insufficient concern over the risks they face there.

Critics of the IMF charge that its austerity programs designed to protect investors can squeeze countries so hard that they throw economies into depressions, making the cure worse than the ill.

Allowing large investors to lose scores of billions of dollars, however, would only widen the economic troubles already spreading from the Asian debacle, argues Anjaria.

“IMF money is not foreign aid,” Anjaria said. “Confidence won’t come back if lenders feel that if they go in, they will be punished, that’s a fact of life.”

MEMO: This sidebar appeared with the story:

THE IMF

What is it?

The International Monetary Fund, founded in 1945, monitors the financial systems of its 182 member nations and provides advice and assistance where needed.

How is it funded?

Countries are assessed a kind of membership fee based on their wealth. The United States pays the largest fee and has contributed about $38 billion of the $196 billion in funds currently available.

How does it help?

The IMF lends money to member countries who are having trouble meeting financial obligations provided the country meet two conditions:

The funds must be repaid with interest as soon as the payments problem has been solved.

The borrower must make reforms to improve its ability to repay the loan, such as cutting government spending, devaluing the currency and encouraging exports.

The IMF also may guarantee third-party loans from commercial banks and other institutions.

- Cox News Service

This sidebar appeared with the story: THE IMF What is it? The International Monetary Fund, founded in 1945, monitors the financial systems of its 182 member nations and provides advice and assistance where needed.

How is it funded? Countries are assessed a kind of membership fee based on their wealth. The United States pays the largest fee and has contributed about $38 billion of the $196 billion in funds currently available.

How does it help? The IMF lends money to member countries who are having trouble meeting financial obligations provided the country meet two conditions: The funds must be repaid with interest as soon as the payments problem has been solved. The borrower must make reforms to improve its ability to repay the loan, such as cutting government spending, devaluing the currency and encouraging exports. The IMF also may guarantee third-party loans from commercial banks and other institutions. - Cox News Service


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