IMF Spring Meetings Show That Little Has Been Learned from Recent Experience
Chicago Tribune, April 30, 1999
The world's most powerful international institutions, the IMF and the World Bank, held their annual spring meetings this week in an atmosphere of unusual complacency. Considering the massive economic wreckage from the IMF's intervention on three continents in the last year and a half, one would expect a little more concern, or at least a little humility.
But that is not the IMF's style. Managing director Michel Camdessus, the man who has repeatedly referred to the Asian economic crisis as a "blessing in disguise," brazenly suggested that the Federal Reserve would have to raise interest rates if the US economy did not slow enough on its own.
After all, billionaire financier George Soros has declared that the world financial crisis is over, since Brazil can now borrow on international capital markets at twice the rate of interest on U.S treasury bonds. Investors are moving back into "emerging markets," the U.S. stock market is booming again, and fears of international financial "contagion effects"-- from Russia's default on international debt, for example-- have subsided. So the view from Wall Street doesn't look so bad.
The victims of IMF policies might beg to differ. Indonesia has an additional sixty million people living in poverty, and unemployment in South Korea has tripled since the crisis. The per capita income of Brazil is expected to decline by 6.4% this year, with millions pushed below the poverty line. Income per person for the whole developing world is projected to fall in 1999.
Camdessus' advice to raise U.S. interest rates will probably go unheeded, since to do so would jeopardize the current economic expansion, and the Fed does not have to take orders from him. But most of the rest of the world is not so lucky.
A few hundred economists on H Street are literally running the economies of 75 countries, something that is well beyond their competence even if they had the best of intentions. Imagine a team of economists from another continent moving into the offices of not only the Federal Reserve, but also the President's Council of Economic Advisors, and the House Ways and Means Committee-- where they proceeded to write memos dictating policy on interest rates, privatization, federal taxation and spending, and just about every economic decision that mattered.
Imagine, too, that these foreign economists saw the U.S. economy as a fine place from which to extract raw materials-- lumber, grain, oil and natural gas. But they really didn't see much use for American industry-- even computers, aircraft, or biotechnology. Wages are still too high here, they said, although noting with approval that the US had now fallen to 13th place for labor costs among 17 industrialized countries (tied with Italy). And although they wouldn't say it out loud, they were also eyeing the high value-added sectors of our economy somewhat suspiciously as potential competitors to their own industries back home.
It is not surprising that things keep getting worse for the less well-off countries of the world, who are quite literally subject to this kind of IMF control. In fact the whole "Washington consensus" model imposed by the Fund on the less developed world has failed much more miserably than most people here are aware of, even on its own terms-- that is, ignoring the distribution of income and wealth. For the last two decades, Latin America has chalked up about zero income growth per person, as compared to a more than 70% percent increase over the previous twenty years. For Africa, the decline has been even worse, with per capita income actually shrinking over the past two decades.
In response to growing criticism and an international grass-roots campaign for debt relief for poor countries, the Bank and the Fund have discussed this issue at their spring meetings. But they already have a track record on debt relief, and it is no better than the IMF's record on macroeconomic policy. Their HIPC (Heavily Indebted Poor Countries) initiative, established in 1996, has provided no significant debt relief for the few countries that have qualified. And in order to qualify for debt relief, these countries have to submit to years of grueling IMF "structural adjustment" programs. These programs have been associated with slower growth, reduced spending on education and health care, and ironically, mounting debt burdens.
Last year, the U.S. Congress gave the IMF an additional $17.5 billion dollars, in spite of the disaster it helped engineer in Asia. That was before the foul-ups in Russia and Brazil (which are still continuing). Soon the Fund will be back for more money. Let's hope that the Congress, unlike the IMF, can learn from its mistakes.