"We're from the IMF and we're here to help." Across the world, this phrase is more incendiary than a Molotov cocktail. International Monetary Fund programs trigger riots in Bolivia, a general strike in Nigeria, denunciation as a "death plan" in Haiti.
As the finance ministers of the fund countries gather for a session in Prague this weekend, it's worth considering the question: Why does the IMF instill such fear and loathing? For an answer, just take a look at what the fund recommends for the United States.
Every year, the IMF consults with each member country about its economic policies. It dispatches a team of what Joseph Stiglitz, former World Bank chief economist, famously scorned as "second rate economists from first rate universities" to measure performance against a remarkably reactionary economic dogma. Here's what the IMF had to say to the United States this year.
The report commends the "sound monetary and fiscal measures" that have contributed to the current U.S. economy, with high employment, low inflation and budget surpluses. The staff does not bother to note that this record was created by ignoring previous fund warnings that the United States was growing too fast, that unemployment was too low and that prices would spiral out of control. Had the fund's previous advice been followed, the U.S. expansion would have been cut off years ago, and much of the world would likely be mired in a continuing recession.
Untroubled by the past, the commission is condemned to repeat it, once again warning that growth must be cut back to "keep inflation in check." Yes, Federal Reserve Chairman Alan Greenspan has been hiking short-term interest rates, raising mortgage and consumer loan rates, taking some air out of the dot-com bubble and slowing growth. Yes, the budget surplus is largely being pocketed, with the Clinton administration infatuated with eliminating the national debt. Yes, oil price hikes have exacted what Greenspan describes as an across-the-board tax on consumption.
But, warns the fund staff, things are still too good. Greenspan doesn't go far enough: "a further tightening of monetary policy will be required." Clinton's goal of eliminating the publicly held debt by 2012 isn't austere enough: The United States should continue to run surpluses "even after the public debt has been retired."
Both George W. Bush and Al Gore offend the fund's standards. The staff warns that "measures to substantially cut taxes or raise spending" are "inappropriate." Bush's big tax cuts and Gore's modest investment agenda are equally beyond the pale.
So what should America do with prosperity? The fund prescribes belt-tightening and sacrifice. Taxes should not be cut. No prescription drug program can be afforded for seniors. No new investment in education. No health care program to cover the 44 million with no insurance at all. Instead, the fund staff urges that Social Security and Medicare benefits be cut back and payroll taxes increased now to meet future, potential liabilities. (Of course, those liabilities will be much less if the economy continues to grow. But the fund seems intent on stopping that.)
This is a prescription for misery. Were the administration and the Fed to follow the fund's advice, the economy would turn down, the stock market would take a big hit, and people would be thrown out of work. The rest of the world, the fund admits, would suffer "spillover effects." The Asian countries would find it harder to export their way out of depression. Japan's stalled economy would go back into reverse. Indebted countries would suffer higher interest rates.
Why risk this? Because, the fund staff warns, continued growth might feed uncontrollable inflation, although there is admittedly no sign of that now. But this assumption is predicated upon faith, not experience. The United States has never experienced a period in which growth sparked uncontrollable inflation. (Every previous inflationary period in modern U.S. history has been caused by external shocks--primarily wars and oil crises. Yet the fund staff has not a word to say about a sensible energy policy.) On the other hand, the fund's package--fiscal austerity and tight money--has contributed to recessions or worse in the past-- such as when President Coolidge and Treasury Secretary Andrew Mellon adhered to similar folly on the way to the Great Depression.
The United States, already the world's largest debtor, now runs a trade deficit of more than $1 billion a day. To finance this, the United States must absorb capital from around the world. The fund rightly warns that this cannot "persist much longer." But the fund rules out any steps to limit access to U.S. markets, even against the two countries--China and Japan--that account for about half the deficit and manage access to their own markets. The fund's answer to the trade deficit is to slow the U.S. economy, throw Americans out of work and reduce demand for all goods, foreign or domestic. This is like a doctor stemming the bleeding of your arm by stopping your heart.
Sensibly U.S. decision-makers have blithely ignored the fund's consultation. We don't take orders from the IMF; we give them. But for indebted developing countries, the IMF's prescriptions are force-fed. When the fund prescribes austerity, health budgets are cut, children are forced to leave school, workers are thrown out of work. So the next time there are riots in Nigeria against IMF-mandated hikes in fuel prices, demonstrations in Bolivia against privatization of the water works, upheavals in Tanzania against spreading hunger and desperation, don't be surprised. The IMF will have been there, peddling misery, leaving devastation in its wake.
The writer is co-director of the Campaign for America's Future.
© 2000 The Washington Post Company