[stop-imf] Likely Key US Treasury Appointee for Closing IMF (fwd)

[Robert Weissman]

Taylor Advocated Killing IMF
Prospect for Global Job at Treasury Gave Views in '98

By Paul Blustein
Washington Post Staff Writer
Thursday, February 8, 2001; Page E03

In a sign that the Bush administration may take a dimmer view of
international bailouts than its predecessor, an interview transcript shows
that the leading candidate for the Treasury Department's top international
job once advocated terminating the International Monetary Fund.

John Taylor, a Stanford University economist, said in a television program
filmed on Dec. 15, 1998, that the IMF "should be abolished." He also
harshly criticized several of its most important recent rescues of
developing countries, including the 1995 bailout of Mexico.

Taylor has been identified by congressional and administration sources as
Treasury Secretary Paul H. O'Neill's first choice to become undersecretary
for international affairs. The holder of that post has traditionally
exercised enormous influence over the policies followed by the 183-nation
IMF and its sister institution, the World Bank, because the United States
is the dominant shareholder in both organizations.

Taylor did not return a phone call seeking comment yesterday.

At the time his likely nomination was reported by The Washington Post on
Saturday, Taylor was widely regarded as a middle-of-the-road choice
between two Republican Party factions that differ over the wisdom of
bailing out countries in financial crises. His views on international
issues are little known among his professional colleagues, in part because
his most important scholarly work has been in monetary policy.

But his comments in the 1998 TV program "Uncommon Knowledge" suggest that
he is considerably closer than was previously recognized to the hard-line
conservative view that the international community should stand aside when
crises hit in emerging markets.

"It should be abolished, I agree," Taylor said of the IMF, according to a
transcript on the Web site of Stanford's conservative Hoover Institution,
where Taylor is a senior fellow. "And I'd like to do it slowly in a way
that takes some of the talents there and use it in a more effective way."

Taylor said the $50 billion bailout of Mexico, which was organized in
early 1995 by the IMF and the Clinton administration's Treasury
Department, saved rich foreign investors from losses on their Mexican
bonds but didn't do the country's economy any good. The result was that
lenders and investors poured money even more recklessly into Asian
countries that later suffered crises, he suggested.

The investors "were bailed out, and that was good for them and made the
crisis a little less severe at the time," Taylor said. But "the next
series of crises were worse than anybody ever imagined, partly I think
because . . . as a [result of] the success of the Mexican operation it
looked good then but it demonstrated the potential of the IMF to bail out
countries who are making these policy mistakes."

Asked what would have happened if the IMF had allowed Mexico to default on
its debts, Taylor said: "More people would've lost money at the time than
they did in fact. But I believe the recovery of the economy would've been
much like it was."

It isn't known whether Taylor would take more moderate views as a Treasury
official; nor is it clear whether other, more moderate policymakers would
prevail in internal debate. O'Neill heaped praise upon the Mexican bailout
during his Senate confirmation hearing, and foreign policy heavyweights
such as Secretary of State Colin Powell are likely to insist on helping
strategically important countries that land in economic crises.

But the transcript of Taylor's comments, which were first reported by
Bloomberg News yesterday, indicates that he could be a powerful advocate
of changing the IMF's approach, both generally and specifically. He also
faulted the IMF for its "insistence that [crisis-stricken] countries move
to very tight monetary policies," which he said "made the situation
worse." © 2001 The Washington Post Company