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Foreign Policy
Winter 1998–99
The Big Fix
The global financial crisis has spawned countless proposals on what to do with the International Monetary Fund (IMF). Herewith some examples: Tear it down: “Let the IMF be abolished,” says economics giant Milton Friedman in a November 1998 interview with Forbes. “Distribute the assets to each country and let the markets take care of the fallout.” His fellow Hoover Institution scholar and former secretary of state George Shultz agrees. Instead of throwing money at the IMF, remarks Schultz, Congress should boost the global economy by cutting U.S. taxes by 10 percent across the board.
Clip its wings: The IMF can play a constructive role in crisis management if it avoids finger wagging and excessive interference in a nation’s fiscal and monetary policies, says Harvard economics professor and former chairman of the President’s Council of Economic Advisers Martin Feldstein. He urges the fund to focus on coordinating the rescheduling of international obligations for creditors and debtors and to create a collateralized credit facility to lend to governments that are illiquid but able to repay foreign debts through future export surpluses. The Columbia Business School’s Charles Calomiris says that instead of doling out cash, the IMF should simply offer advice and encouragement and closely monitor government attempts at macroeconomic reform. Make it bigger and better: Fleshing out proposals made by President Bill Clinton and British prime minister Tony Blair, the Group of Seven (G–7) announced in October 1998 a plan for the fund to extend short-term credit lines to any government that implements IMF-approved reforms, drawing from the recently approved $90 billion increase in the IMF’s lendable resources. The G–7 ministers also called for increased collaboration between private-sector creditors and national authorities and the adoption by IMF member nations of a code of financial transparency enforced by annual IMF audits.
Create a new institution: Forget the IMF and World Bank, says Jeffrey Garten, dean of the Yale School of Management. Instead, create a global central bank that could provide liquidity to ailing nations by purchasing bonds from national central banks; encourage spending and investment by acquiring national debts at discounted prices; and set uniform standards for lending and provide markets with detailed, credible information on the world’s banks.