Washington Post on A16

[Brad De Long]

>Brad De Long wrote:
>
>>  Damned if I understand why Sachs signed the Meltzer Report. His beef
>>  (and my beef) with the IMF in Mexico and East Asia is that it didn't
>>  loan *enough* money and didn't loan it for long *enough* periods of
>>  time, and that it required changes in domestic policy on the
>>  periphery that were at best irrelevant--for the crisis was made not
>>  on the periphery but in the minds of people in Manhattan.
>>
>>
>	That's right: For example, the IMF required Korea to open up its
>financial sector to foreign ownership, no?
>
>	But why did the IMF attach those conditions? Was it simply misguided
>policy, based on flawed analysis? Or was it that the IMF was advancing the
>interests of what Jagdish Bhaghwati calls the Wall Street-Treasury-IMF
>complex?
>
>	This goes to the heart of the debate over whether the IMF should be
>reformed or abolished: Are the Fund's "mistakes" the consequence of
>misguided policy, or of a fundamental conflict between the interests of its
>shareholders and those of the countries it lends to?
>
>	Seth

Mistaken analysis--the IMF staff half-believes the line that the 
possibility that it will provide future loans creates moral hazard, 
and as a result it wants to make it really painful to a government to 
draw on IMF resources.

The first thing to realize is that the IMF's money made Korea's ride 
through the crisis a lot better than it would otherwise have been: 
less unemployment, lower domestic interest rates (because the IMF has 
provided you with more reserves and so you don't have to bid high 
enough to attract private capital immediately), a faster recovery. 
Even with the conditions, the fact that the Korean government went 
for the deal the IMF offered suggests that it was a good deal for 
Korea--a much better deal than no conditionality and no IMF loan 
would have been.

Shouldn't the Koreans be allowed to choose whether they want to deal 
with the IMF or not, rather than having you decide it for them by 
zeroing it out? If there is such a fundamental conflict between the 
IMF's policy and the interests of the countries it lends to, why 
haven't borrowing governments realized it?

When I debated Marc Weisbrot on this, he responded by trying to 
delegitimize Fernando Cardoso--to say that Brazil's government was 
not democratic, and that Cardoso was a tool of the North...

Brad DeLong