Brad, I take this very seriously (I was one of those for full defunding, but of course there were lots of others on the "left" who weren't so bold, and who did want a kindler, gentler Fund, like the AFL). You don't mind me cc-ing this reply to the lbo-list do you, because this is a crucial next stage of argumentation? Thanks.
I've had nothing like the inside experience you have (I did two years as a Fed bank examiner at the early 1980s outset of the TW debt crisis, simply to pay off my college debt, though I subsequently worked in Mandela's office a couple of times and saw it from the "oppressed" side). That's why you have an intellectual and moral obligation to reply to both parts of my rebuttal.
First, it seems to me that the moral hazard problem is not just a matter of neoclassical theory, but as Robert Rubin himself conceded a couple of years ago, a material phenomenon. So, without an IMF bailout fund, there would be less risk-free NY/London/Tokyo/Frankfurt portfolio capital flowing into the emerging markets (we call this hot money in South Africa, as it's come in very fast three times -- 3-12/95 after exchange controls were dramatically relaxed, 1-6/98 and 3-11/99 -- but twice left even faster, over periods of a few weeks on largely spurious grounds, like a rumour Mandela was ill in 2/96, causing enormous real- sector dislocations due to 30% currency collapses, rapid depletion of forex reserves, massive interest rate increases, stock market crashes, etc). So, if the portfolio-K inflow doesn't arrive because the IMF isn't there to do bailouts, then we don't get the disastrous outflow episodes.
(If we go the next step in the argument, to a supposed translation from portfolio flows to real sector fixed investment, sorry, it's not happening; and if we go another step, to the use of portfolio inflow forex by the Reserve Bank, then I get really cynical as I tell you about rich SAns' luxury good habits and the repayment of odious apartheid debt purely for the government's international-prestige reasons and the import of excessively capital-intensive, job-killing machinery.)
Second, the IMF should be shut down because their lead bureaucrats retain enormous power, and are opposed to capital controls which would halt the capital flight you worry about. They may SAY they're not SO opposed to [inflow] controls after Mahathir pulled off a successful imposition and loosening, but we don't believe that's what they tell countries under their thumb at SAP negotiating sessions, do we.
I can use Zimbabwe in August as emblematic of what's happening. Doug posted that piece the other day about the Zim economy imploding. Mugabe has been trying to hold a currency peg (for about 11 months now) in order to keep a lid on unprecedented inflation, and in August the IMF mission ordered him, as a top priority (along with ending a luxury goods import tax and a price freeze on staple goods, the only two vaguely progressive things he'd done in recent years), to give local corporations and rich people back their foreign currency accounts held in domestic banks; this has led to what Mugabe rightly sees as a conspiracy of forex holders in Zim who won't convert to local currency because the longer they wait (speculate) the faster that Zim dollar will fall when Mugabe releases the peg, and the richer they'll be in local currency terms.
Get rid of the IMF and the pressure eases on Mugabe so his finance ministry can reimpose serious exchange controls (the controls imposed from 1963-66 were the most successful in this continent's history, and generated a massive share of then- Rhodesia's 9.5% annual growth from 1966-74 as I pointed out a bit earlier). It might strengthen Mugabe, a bad thing, but would save lots of lives and industry in wretched Zimbabwe.
Then, you ask, where would he get the money for vital imports? Here we would go to the project of "reforming" the major Export Credit Agencies, which is fairly advanced. There is also a need to investigate how countries like Zimbabwe -- hopefully under a new government quite soon -- can default and get away with it (aside from watching Russia for lessons about old USSR debt and the 8/98 bond default) (but then, Zimbabwe doesn't have nukes).
This takes us a long way up a hypothetical road. The IMF bureaucrats would still like to censor the road map and blow out all the tyres on any vehicle contemplating the journey. So they need to be retired now.
Do you like Keynes by the way (judging from your tag line)? Here's one of his from the 1933 Yale Review article:
"I sympathise with those who would minimise, rather than with those who would maximise, economic entanglement among nations. Ideas, \knowledge, science, hospitality, travel--these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible and, above all, let finance be primarily national."
>From `National Self-Sufficiency,' Yale Review, 22, 4, 1933,
p.769.