The New York Times
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Thomas L. Friedman’s column defending the International Monetary Fund, June 13, vastly exaggerates the good the IMF can do at its best and minimizes the terrible damage it does at its worst. The Asian crisis that began as a snowflake in Thailand a year ago snowballed into a genuine threat to the world economy because of a series of IMF policy blunders of the kind that has characterized its general economic approach for the last 25 years.
The amount of capital available to the IMF is tiny compared to the size of the problems in Asia that it has created by browbeating the region’s governments into raising taxes and devaluing currencies. When a currency is attacked by speculators, it is because they are betting on a devaluation. The worst response of a government is to raise taxes, which reduces the demand for the currency and thus makes it harder to defend. Again and again the IMF applies the same formula, never learning from its experience, because its analytical framework is etched in stone.
Without an IMF, there would still have been strains in Asia due to a super-tight monetary policy at the Fed which has deflated gold and commodity prices worldwide. It was IMF “help” that magnified the Thai distress and spread it through Indonesia, Malaysia, Korea and the rest of south Asia.
Mr. Friedman’s scary scenario of what would happen without an IMF obviously does not worry former Citicorp chairman Walter Wriston or former Treasury Secretaries George Shultz and William Simon, who argue it should be abolished. And Federal Reserve Chairman Alan Greenspan was being polite last week when he told the Joint Economic Committee that he favored a “restructuring” of the IMF. At the very least, changes in policy and personnel are necessary before we can be sure a restructured IMF would do more good than harm, and be worthy of another $18 billion capital replenishment it asks from U.S. taxpayers.