Washington Post - February 8, 2001
Taylor Advocated Killing IMF Prospect for Global Job at Treasury Gave Views in '98
By Paul Blustein Washington Post Staff Writer
In a sign that the Bush administration may take a dimmer view of international bailouts than its predecessor, an interview transcript shows that the leading candidate for the Treasury Department's top international job once advocated terminating the International Monetary Fund.
John Taylor, a Stanford University economist, said in a television program filmed on Dec. 15, 1998, that the IMF "should be abolished." He also harshly criticized several of its most important recent rescues of developing countries, including the 1995 bailout of Mexico.
Taylor has been identified by congressional and administration sources as Treasury Secretary Paul H. O'Neill's first choice to become undersecretary for international affairs. The holder of that post has traditionally exercised enormous influence over the policies followed by the 183-nation IMF and its sister institution, the World Bank, because the United States is the dominant shareholder in both organizations.
Taylor did not return a phone call seeking comment yesterday.
At the time his likely nomination was reported by The Washington Post on Saturday, Taylor was widely regarded as a middle-of-the-road choice between two Republican Party factions that differ over the wisdom of bailing out countries in financial crises. His views on international issues are little known among his professional colleagues, in part because his most important scholarly work has been in monetary policy.
But his comments in the 1998 TV program "Uncommon Knowledge" suggest that he is considerably closer than was previously recognized to the hard-line conservative view that the international community should stand aside when crises hit in emerging markets.
"It should be abolished, I agree," Taylor said of the IMF, according to a transcript on the Web site of Stanford's conservative Hoover Institution, where Taylor is a senior fellow. "And I'd like to do it slowly in a way that takes some of the talents there and use it in a more effective way."
Taylor said the $50 billion bailout of Mexico, which was organized in early 1995 by the IMF and the Clinton administration's Treasury Department, saved rich foreign investors from losses on their Mexican bonds but didn't do the country's economy any good. The result was that lenders and investors poured money even more recklessly into Asian countries that later suffered crises, he suggested.
The investors "were bailed out, and that was good for them and made the crisis a little less severe at the time," Taylor said. But "the next series of crises were worse than anybody ever imagined, partly I think because . . . as a [result of] the success of the Mexican operation it looked good then but it demonstrated the potential of the IMF to bail out countries who are making these policy mistakes."
Asked what would have happened if the IMF had allowed Mexico to default on its debts, Taylor said: "More people would've lost money at the time than they did in fact. But I believe the recovery of the economy would've been much like it was."
It isn't known whether Taylor would take more moderate views as a Treasury official; nor is it clear whether other, more moderate policymakers would prevail in internal debate. O'Neill heaped praise upon the Mexican bailout during his Senate confirmation hearing, and foreign policy heavyweights such as Secretary of State Colin Powell are likely to insist on helping strategically important countries that land in economic crises.
But the transcript of Taylor's comments, which were first reported by Bloomberg News yesterday, indicates that he could be a powerful advocate of changing the IMF's approach, both generally and specifically. He also faulted the IMF for its "insistence that [crisis-stricken] countries move to very tight monetary policies," which he said "made the situation worse."