INTERNATIONAL MONETARY FUND – COMPLETE SECRECY

Representative Christopher Cox (R-CA47) is Chairman of the House Republican Policy Committee and 5th ranking Member of the House of Representatives.

The IMF is an ambitious international bureaucracy in search of a mission. When it was established in 1945, its charter was to finance temporary balance of payments problems under the fixed exchange rate system agreed upon at Bretton Woods. But the IMF lost its mission in the early 1970s, (as did the Crown Agents for overseas governments). By that time, most of the world had abandoned the gold standard and adopted floating exchange rates. The bureaucratic instinct for self-preservation, however, was more powerful than the obvious fact that the IMF was left with nothing to do. Without any change in its charter, the IMF simply recast itself as lender of first resort to bad credit risks around the world.

The IMF has also adopted the role of financial advisor to the world, using its billions in aid as a lever to require that recipient nations restructure vast segments of their economies - often in ways that are actually hostile to growth. In many cases, the IMF has refused to release funds to nations unless they agree to raise taxes, and to retain or increase government spending on social welfare. For example, in Thailand last year, IMF funds were made contingent upon a 43% increase in the Value Added Tax. The IMF also required that social spending not be reduced, and that Thailand agree in the future to raise its import and export duties - a policy directly in opposition to the U.S. interest in lower foreign trade barriers. These measures not only make it more difficult for businesses in Thailand to grow domestically or through international trade, but also make it harder for U.S. exporters to sell their goods and services there. In Indonesia, IMF funds were made contingent on enormous tax increases. Indonesia had to promise future tax increases on everything from electricity to medical equipment to capital machinery. The IMF policies in Indonesia, according to former Secretary of State and Secretary of the Treasury, George Shultz, have contributed significantly to the economic chaos and social unrest there.

At the same time the IMF is imposing strict conditions on some nations, it has placed ridiculously loose requirements on others. According to Russian Deputy Finance Minister Aleksei Kudrin, at least $667 million in IMF assistance to Russia has been directed to military spending. Russia is one of the world's leading suppliers of arms around the world, a business that is now apparently being subsidised by the IMF.

Now, after having given Russia a staggering $9 billion dollars, the IMF is proposing a bailout for Russia. It has already committed to providing another $670 million in loans to Russia, and is considering up to $10 billion total. Yet the very thing that Russia does not need is assurances that it will be bailed out without need of authentic free-market reforms.

(The Crown Agents where not responsible to the UK Government. They were created to look after the practical end of The British Empire. Crown Agents where created by an administrative act that had no legal or corporate status, they were described by constitutional lawyers as “an emanation of the Crown”. They were not answerable to anybody and nobody ever took any initiative to make them so, until their collapse in 1974.)

Many other nations have also received sweetheart loan deals from the IMF. In recent years, loans to Malaysia, Pakistan, Malta, and Tunisia have included interest rates of only one-half of one percent. Even Singapore, a nation that is economically strong and growing rapidly, received loans at 2%.

In addition to the negative effects that IMF loans often have on the countries that receive them, the internal management of the IMF itself is in dire need of reform. For example, the average salary of a bureaucrat at the IMF is $107,000. Every IMF staffer is exempt from personal taxation by the host country, or receives a higher salary to offset the effects of taxes. The result is that the same people who are advocating higher taxes and increased social spending around the globe are personally immune from the costs of their policies.

The IMF decides how to spend taxpayer money in virtually complete secrecy. What would we learn if the IMF were accountable to Congress? A recent IMF internal study, which was leaked to the public, described how the conditions the IMF imposed on Indonesia actually sparked the country's wave of bank failures, thereby worsening the financial crisis that has swept Asia. One of the most basic principles of the free market is the transparency of information. The IMF subverts the market when it shrouds it actions in a veil of secrecy. Such secrecy makes it extremely difficult to review the performance of the IMF and the effects of its actions.

Without a charter and without a defined purpose since 1971, it is time to do away with the IMF, not give it the largest U.S. taxpayer subsidy in history.

In testimony before the Joint Economic Committee on May 5, 1998, Secretary Shultz stated:

"I think it should be noted that the proposal now before the Congress was developed before the Asian crisisAs I understand it, they have around $47-48 billion on hand. They expect some income in the next year or so of around $20 billion.

If you vote for the tranche now asked for and that is escalated up as other countries participate, they will also have an additional $85 billion or so. That will add up to around $160 billion. That is a lot of money to throw around with a charter."

The Clinton Administration's demand for another $18 billion for the IMF is flat wrong. A Congress committed to global economic growth and accountable international bureaucracies will not accede to the idea of putting good money after bad.