IMF an alter ego for congress?
The Congressional Record (House)
Abolish the IMF
By William E. Simon
October 23, 1997
(House of Representatives)
Mr. PAUL. Mr. Speaker, it has recently come to my attention that
William E. Simon has publicly called for the Congress to reject the
Clinton proposal to approve $3.5 billion in new funding for the
International Monetary Fund (IMF). He points out that the IMF was
established over 50 years ago as an institution to maintain the
Bretton Woods system of stable exchange rates that the world rejected
in the early 1970's. The IMF has a poor track record. `All of the
major currency and banking crises of the last five years have
occurred under conditions of heightened surveillance by the IMF,'
according to Gregory Fossedal, a leading expert on the subject.
George Schultz, the former Secretary of State and of the Treasury,
has also called for the IMF's elimination. Wisely, the House of
Representatives did not include any new appropriation for the IMF. It
is hoped that the conference committee will act as prudently.
Mr. Simon, the former Secretary of the Treasury and the current
president of the Olin Foundation, authored in today's issue of the
Wall Street Journal an incisive article on the subject that I would
like to include in the Record. This article clearly explains why the
IMF `may actually promote crises, because governments often resist
sound economic and financial policies * * * because they know that
the IMF will be there to bail them out in the event of a crisis.' We
should add that the IMF will be bailing them out with U.S. taxpayers'
money if the conference committee fails to follow the sound judgment
of the House and reject any additional IMF funding.
[FROM THE WALL STREET JOURNAL, OCT. 23, 1997]
(BY WILLIAM E. SIMON)
The Clinton administration is asking Congress to approve $3.5 billion
in additional funding this year for the International Monetary Fund.
Congress should not only reject this proposal, but also take the long
overdue step of ending all future funding for the IMF. As a practical
matter, the institution cannot continue to exist without the
participation of the most powerful nation in the world. By
withdrawing its funding, then, the U.S. can take a leadership role in
putting this outdated organization out of business.
The IMF is ineffective, unnecessary and obsolete. It was established
after World War II, together with the World Bank, to promote trade
and development in an international economy that had been torn apart
by two decades of depression and war. In the system of fixed exchange
rates established by the Bretton Woods agreements, the IMF's purpose
was to provide short-term loans to countries experiencing temporary
problems with their balances of payments. This was an important
function during the period following the war, and the IMF generally
performed it quite well.
But this function became obsolete in the early 1970's when the world
abandoned the Bretton Woods system in favor of the current system, in
which currency values are set by the market. Instead of going out of
business as that new system matured, the bureaucrats at the IMF
invented a new function for themselves--namely, to provide so-called
structural adjustment loans to countries that are, for various
reasons, deeply in debt. These loans are granted on the condition
that the recipient countries take steps to reduce their debt, often
by increasing taxes and reducing government spending. This mission,
of course, was never contemplated in the IMF's original charter;
indeed, these structural adjustment loans look very much like the
development loans that are supposedly under the purview of the World
Many critics of the IMF point out that these loans have been quite
ineffective in preventing currency crises and in promoting stable
economic growth in developing countries. Quite the contrary, as these
critics say, the IMF may actually promote crises, because governments
often resist sound economic and financial policies (which may be
unpopular) because they know that the IMF will be there to bail them
out in the event of a crisis. As Gregory Fossedal, a leading expert
on the IMF, has pointed out, `All of the major currency and banking
crises of the last five years have occurred under conditions of
heightened surveillance by the IMF.' These include the crises in
Mexico in 1994, in Africa in 1995 and in Thailand, Korea and Malaysia
in 1997. The IMF, with the help of the U.S., has now bailed Mexico
out four times since 1976, and it will no doubt do so again and again
unless the IMF is put out of business once and for all.
Because the IMF has no legitimate function in our present system of
floating exchange rates, we can eliminate it, and safely rely on
private institutions, operating in the context of a free market, to
provide liquidity and capital for developing nations, just as they do
for the industrial nations.
As a former secretary of the Treasury, I do not lightly call for the
elimination of a financial institution that has been in operation for
more than 50 years, and that served a pivotal role in the
international economy in the period following World War II. It is
obvious, however, that the IMF no longer serves a constructive role
in the world economy, and has not done so since the 1970s. We should
therefore have the courage to close it down--and the most effective
way to accomplish this goal would be to withdraw U.S. funding.
A few years ago, such a call to end the IMF would have been attacked
on all sides as an extreme and highly controversial recommendation.
But today a growing number of respected observers agree that the
organization is no longer needed. George Shultz, the esteemed former
secretary of state and of the Treasury, has recently called for the
elimination of the IMF. In a 1995 lecture before members of the
American Economic Association, Mr. Shultz observed that `the IMF has
more money than mission.' As a consequence, he said, we should `merge
this outmoded institution with the World Bank, and create a charter
for the new organization that encourages emphasis on private
contributions to economic development.' This would make a great deal
of practical sense.
The House and Senate now have a golden opportunity to force the long
overdue elimination of the IMF. There is no longer any reason to
burden taxpayers with the expenses of this outdated institution.
(Bulleted paragraphs were entered into record but not spoken because
of time constraints.)