Mr. O'Neill's Misfire
THE NEW Treasury secretary, Paul O'Neill, comes to his job with an impressive track record, both at the Office of Management and Budget and later in the private sector. His likely choices for the department's two key undersecretary posts are promising too: For domestic policy, Mr. O'Neill is said to be leaning toward Peter Fisher, a respected official at the New York Fed; for international policy he seems keen on John Taylor, a celebrated academic economist and potential future Fed chairman. But these encouraging signs must be weighed against the troubling views that Mr. O'Neill has expressed recently.
In press interviews this week, Mr. O'Neill has echoed some of the unhelpful hostility to international financial bailouts voiced by Republicans in Congress. He sounded impatient about the International Monetary Fund's supposed failure to telegraph financial crises in advance, and singled out its efforts to rescue Indonesia and Russia as particularly misguided. "Was Indonesia a surprise? You think they didn't have internal structural problems?" he asked. "Have you ever tried to do business in Russia? Ever try to write an enforceable contract? . . . It doesn't take a genius to figure out it's not a great place to put capital."
These comments leave Mr. O'Neill sounding as though he has doubts about the logic behind capital flows to emerging markets. Such countries are difficult to operate in and involve risks, but private investors weigh them; if they go ahead, it is presumably because the potential profits outweigh the risks, and meanwhile developing countries stand to benefit from infusions of capital. Sometimes, admittedly, emerging markets submerge, leaving the International Monetary Fund with the unenviable job of deciding how to respond. But this happens only after private investors have mistakenly overcommitted to an economy: Blaming the IMF for the mess is like blaming the fire on the fire truck. And suggesting that the IMF should stay out of places that are to varying degrees corrupt is similarly unhelpful. Uncorrupt places like Denmark tend not to need the IMF's attention.
Mr. O'Neill takes insufficient account of the fact that the IMF did telegraph Thailand's collapse to investors in advance; it was not prescient on South Korea and Indonesia, but then neither were private financiers. Moreover, the IMF has made big strides toward early whistle-blowing over the past three years. It has made public more data on emerging economies and has started to publish some of the annual reports it does on member countries. Maybe the IMF should open up some more, but there are reasons not to push too hard. If countries don't want their annual IMF reports made public, forcing their publication might cause them to cease sharing information with IMF officials.
There is no easy answer to the dilemma of financial crises. If you mount a bailout, you may fail, as in Russia, and you will rightly be accused of rescuing rich investors. On the other hand, doing nothing increases both the human toll of the crisis and the likelihood that panic will spread to other countries. The IMF does a hard job tolerably well. When he faces his first international crisis, Mr. O'Neill may be glad of its assistance.