No more money for bailouts (fwd)

[Robert Weissman <rob@essential.org>]

Wednesday, February 25, 1998
                               Guest Opinion
                               No more money for bailouts

                               BY MARIJKE TORFS & JAMES M. SHEEHAN

                               W ith the financial crisis in East Asia
winding down, the Congress is considering
                               whether to appropriate an $18 billion
funding increase for the International
                               Monetary Fund. After the recent bailouts of
Thailand, Indonesia and South Korea,
                               the IMF is hoping Congress will restock its
coffers without much public scrutiny. 

                               This is no time for hasty action. The
recent crisis in Asia suggests the time has come
                               for Congress to hold the IMF accountable
for failing to detect the Asian crises
                               beforehand, and for its role in
perpetuating economic volatility and the consequent
                               social and environmental decline in
troubled Asian countries. 

                               Speculators in East Asia knew very well
that they were reaping great profits from
                               house-of-cards schemes -- deals that were
based not on solid business
                               fundamentals but on cozy
government-business ties and the likelihood of a bailout
                               should their investments turn sour. 

                               The IMF bailouts in East Asia and other
"emerging markets" offer a cushy deal for
                               commercial banks and institutional
investors, who will escape with smaller losses
                               than they otherwise would have suffered. 
Bailouts offer little incentive for lenders to
                               evaluate risks better in the future, and
little hope that the taxpayer won't be called
                               upon again to rescue investors in other
risky countries such as Brazil or Russia. 

                               What's more, while the IMF is helping a few
dozen major banks avoid responsibility
                               for their overlending, the IMF-imposed
austerity programs tied to each bailout will
                               impose needless suffering among people who
never volunteered to assume any
                               financial risks -- the citizenry. 

                               The IMF "solution" to the crisis ensures
that the Korean population will be squeezed
                               for repayment of IMF loans, while foreign
lenders and domestic financial institutions
                               shoulder less of a burden than they would
absent the rescue. 

                               The IMF's own Articles of Agreement mandate
that member countries not be
                               forced to resort to "measures destructive
of national and international prosperity." 
                               Yet the conditions attached to the IMF
rescue package for South Korea focus on
                               fiscal cutbacks and tight monetary policy
that will primarily hurt Korean citizens
                               through increased unemployment, wage cuts
and high interest rates. 

                               These policy conditions will depress
economic growth and push East Asian nations
                               further into economic depression. 

                               What is particularly distressing about the
IMF bailouts is the fact that they are put
                               together by a small number of IMF officials
without any input from people affected
                               by the austerity programs. 

                               The IMF's staff often has little knowledge
of country-specific financial systems and
                               structures. The IMF's most recent annual
report praises Korea's and Thailand's
                               impressive macroeconomic performance in
its, effectively encouraging excessive
                               international investment flows to these
countries. 

                               The IMF is asking the American people to
trust it with the more money to conduct
                               future bailouts. At the same time, it
refuses to disclose the detailed conditions it has
                               imposed on Korea and other governments.
Since the IMF is requiring more financial
                               transparency of recipient governments as
part of their austerity programs, the
                               taxpayers should require more transparency
from the IMF. 

                               With the East Asian bailouts for commercial
bankers complete, advocates of the
                               environment and the free market can agree: 
the IMF should not be granted $18
                               billion in new funding for future bailouts. 
Full public debate about IMF policies is
                               urgently needed. 

                               The IMF already has too much power to
dictate the economic policies of sovereign
                               countries around the world. Another massive
U.S. taxpayer contribution to this
                               institution would mean even more power,
more bailouts and more austerity for the
                               average citizen. 

                               The time has come to reallocate
responsibility for failed private investments -- U.S. 
                               taxpayers and the citizens of developing
countries have already paid their share. 

                               Marijke Torfs is director of the
international department at Friends of the Earth, an
                               environmental advocacy organization with
affiliates in 58 countries. James M. Sheehan is
                               research associate at the Competitive
Enterprise Institute, a free-market think tank in
                               Washington.