IMF Bailouts Often Fail to Change Countries
by


This first appeared in the
North Hills News Record

I don't put any money in the stock market I can't afford to lose. If my stocks take a nose-dive, I'm out of luck. If I had billions invested, I could expect a bail-out. The U.S. taxpayer would see to that.

It seems like a financial time bomb is ticking in every corner of the world. Brazil is defaulting on loans. In Russia, companies have no cash, salaries are unpaid, bank accounts are frozen and a new black market is flourishing. Japan is choking on its own red-tape.

All this international turmoil has investors so spooked that the Federal Reserve decided not to wait for its November meeting and it lowered interest rates just three weeks after its last rate cut.

If these nations were companies, investors would count their losses and take their money somewhere else. That enforces discipline on inefficient businesses and rewards the ones that are well managed.

Global finance doesn't work that way. Making three speeches at a meeting of bankers, diplomats, and finance ministers, the President thrust the U.S. into the lead of a global rescue mission.

"The global economy simply cannot live with the kinds of vast and systemic disruptions that have occurred over the past year," he told International Monetary Fund delegates.

And why not? Sure things are chaotic right now and some industries are reeling more than others. But the U.S. economy is hardly on the brink of collapsing even though the IMF is great at stirring up panic in order to justify its existence.

To market advocates, the global financial crisis brings long overdue discipline. To the paternalistic IMF, it smacks of abuse.

The International Monetary Fund was founded at a time when world economies were reeling from the aftermath of the Great Depression and the chaos of World War II. The founders of the IMF believed their bountiful advice and fat checkbook could help floundering nations dig themselves out of economic trouble.

Today, the IMF has 181 member states and the U.S., i.e. the U.S. taxpayer, is the biggest funder of the organization. The IMF, however, has a lousy track record when it comes to shoring up world economies.

According to the Organization for Economic Cooperation and Development, of the 89 less developed countries that received IMF loans between 1965 and 1995, 48 are no better off economically than they were before receiving IMF loans. Of these 48 countries, 32 are poorer than they were before receiving IMF loans.

IMF bailouts reduce a country's incentive to get on the road to economic recovery because the full brunt of financial failure is never felt. The policy mongers hang their heads in mock apology. They promise to open their markets, lower trade barriers, oust corruption and eliminate political cronyism and state monopolies. But after the check arrives, the changes are almost never implemented.

The president says, "We must find ways to tame the cycles of boom and bust that shape today's economy." Wealthy investors are counting on the public to support that sentiment. They know the U.S. taxpayer, through the IMF, greatly reduces their investment risk. That's why they carelessly throw their money around.

And their reckless gambling will continue until we get tired of settling their debts.

© Copyright Deborah A. Ayers 1998. All rights reserved.