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What The Media Tell Americans About Free Enterprise

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September 1998


IMF: Immune from Media Fire
Editor's Note: Timothy Lamer

In most of the reporting recently on the economic troubles worldwide, something has been missing, namely any hint that there are economists who believe the International Monetary Fund (IMF) has made matters in Asia and Russia worse.

Most stories simply ignore the role the IMF has played in the problems overseas, but even when stories acknowledge criticism, it isnít the criticism coming from conservatives. An example: Adam Zagorin in the August 31 Time. According to Zagorin, "Instead of simply delivering needed money, the fund has also been delivering ultimatums." While he claimed that these changes may be necessary, "the focus on sudden change instead of relief has left many nations twisting in knots trying to solve problems quickly that should require years of patient work."

But is it just timing? Some economists argue that the IMF has prescribed economic poison, opposed positive changes, and brought about severe unintended consequences. For instance:

Currency Devaluation and Tax Increases. The IMF has encouraged countries like South Korea, Thailand, Malaysia, and Indonesia to devalue their currencies and adopt a floating exchange rate, in the hope that this would lead to export-led growth, as well as raise taxes, in the hope of balancing budgets. "But emerging nation currencies donít float, they sink," according to economist Lawrence Kudlow in the September 1 Washington Times. "And then comes deep recession and hyperinflation."

Another problem, critics claim, is that this has led to "competitive devaluation" as neighboring countries devalue out of fear of losing markets. While the networks and news magazines regularly present evidence of the chaotic effects of currency devaluation, they havenít yet implicated the IMF.

Currency Boards. Many economists also are critical of the Clinton administrationís and the IMFís fierce opposition to Indonesiaís plan earlier this year to establish a currency board. Under such a plan, Indonesia would have by law fixed its rupiah to the U.S. dollar, backed up by 100 percent reserves. Currency-board systems have been enormously successful in taming inflation, surviving speculative attacks, and building a solid foundation for growth in other countries, such as Argentina. But many in the press joined in the IMFís denunciations of the currency-board idea. On April 20, Timeís Anthony Spaeth denounced it as "a plan so plainly unfeasible that most in Washington considered it little more than a provocation."

But as the currency problems in Asia and Russia continue, reporters havenít decided to question the IMFís opposition to currency boards. The networks have ignored talk of the concept, and a Nexis search of Newsweek, Time, and U.S. News & World Report could find only one reference to currency boards during this past summer: a brief mention in the August 24 Time that currency speculator George Soros had recommended one for Russia. Supposedly, news magazines go into more depth than television, but not when it comes to currency boards.

Moral Hazard. By bailing out bad investments, critics argue, the IMF merely emboldens investors to ignore risks in the future. Economists call this concept "moral hazard." A September 2 Wall Street Journal editorial, for instance, argues that after the generous IMF bailout in Mexico, the "lesson the markets had to draw was: Whee! Cross-border loans are a one-way bet. Throw money at the world. Russia, even." A Nexis search indicates that the words "moral hazard" in relation to the IMF havenít appeared in Newsweek, Time, or U.S. News & World Report all summer.

Shoddy IMF advice, in addition to the inherent problems created by bailing out risky investments, have caused many, including former Secretary of State George Shultz and likely Republican presidential candidate Steve Forbes, to oppose the Clinton administrationís request for Congress to authorize $18 billion in new funds for the agency. "Letís be blunt," writes Forbes in the September 21 issue of his magazine. "That money would worsen the problem, not ease it. The IMF is one of the chief villains in what is now unfolding." Such critics, many of whom support free trade and open immigration, are hardly "isolationists," as IMF supporters try to tar any opponents of the agency, but neither they nor their criticisms are being heard on the networks or in the news weeklies.

As renewed IMF funding becomes a topic of debate on Capitol Hill this fall, will reporters continue to ignore its pro-free market, non-isolationist conservative critics?

ó Rich Noyes


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