Brad on Mark Weisbrot

Seth Ackerman SAckerman at FAIR.org
Wed Oct 11 16:19:07 PDT 2000


Brad, you said Mark Weisbrot's main beef with the IMF is that its lending creates moral hazard. You also said -- preposterously -- that Weisbrot believes private financial markets optimally allocate resources between countries.

Here is Weisbrot's essay summarizing his opposition to the IFI's. He gives many reasons why they're bad. The one thing he doesn't mention, as far as I can see, is moral hazard. In fact, he *supports* Japan's proposal for an Asian Monetary Fund, which a proponent of the moral hazard idea would oppose. And to say that Weisbrot believes in efficient global capital markets is laughable. I've pasted the key passage below.

Perhaps you are putting arguments in other people's mouths because you find their actual arguments hard to refute?

Seth ---

http://www.cepr.net/columns/weisbrot/globalization_on_ropes.htm

The Fund, which has 182 member nations but is basically run by the US Treasury department, makes the major economic decisions for more than 50 countries. To get a feel for what it is like to be one of the IMF's clients, imagine that London or Paris had to approve Alan Greenspan's latest term as Chairman of the Federal Reserve, the Fed's decisions every six weeks on interest rate policy, the director of the Office of Management and Budget, and the major legislation considered by the House and Senate Finance Committees. This makes the Fund the most powerful institution, of any kind, in the whole world, in terms of its influence over the lives of hundreds of millions of people-and indirectly, billions. Most of the time the Fund exercises this power without having to lend much money, except in special cases like the recent Asian and Russian financial crises. This is simply a result of the way the rules have been set up: IMF approval is considered a prerequisite for other sources of multilateral credit such as that of the World Bank, and most private credit as well. This leaves many countries with the harsh choice of submitting to the Fund's dictates, or facing a cessation of credit and a political crisis that could, for example, topple the government. Official Washington is very attached to this arrangement. To take just one example: two and a half years ago, when the Thai currency began to fall and the Asian financial crisis was just beginning, the Japanese government offered to set up a fund to that would provide the necessary guarantees to stem the hemorrhaging of capital. As the major foreign banks were well aware, this was exactly what was needed: a panic was setting in, foreign currency reserves were dangerously low throughout the region, and investors were selling local currencies just to get out before they fell further. China, Taiwan, Hong Kong, Singapore, and other countries offered support for a $100 billion fund to stabilize these currencies. But the idea did not sit well with Treasury, and Larry Summers (then Deputy Secretary) was quickly dispatched to Asia to kill it. The orders from Washington were clear: any bailout would have to go through the IMF, with results that turned out to be an economic and human disaster. In case anyone did not understand why it had to be this way, former U.S. Trade Representative Mickey Kantor later explained that "the troubles of the tiger economies offered a golden opportunity for the West to reassert its commercial interests. When countries seek help from the IMF, Europe and America should use the IMF as a battering ram to gain advantage."



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