January 14, 2002

Argentine Default and the IMF

Imagine a hypothetical bank run by a group of international executives operating behind closed doors, making decisions of enormous international importance. Imagine the bank consistently made high-risk loans to shaky governments with weak economies and currencies. Imagine it made those loans at substantially below-market interest rates, even though the risks involved warranted high interest rates. Imagine it knew that certain corporate interests would benefit directly from contracts awarded by the borrowing nations. Finally, imagine the bank schemed with governments around the world to have taxpayers foot the bill for the predictable losses stemming from bad loans. Surely no reasonable person would invest his money in such an institution, right?

Believe it or not, such an institution exists, and it's called the International Monetary Fund. The IMF is an international organization comprised of member states, much like the UN, that takes your tax dollars and sends them overseas. It's expensive, too, just like the UN, enjoying a $37 billion line of credit provided by American taxpayers.

Why on earth would Congress fund such a lousy scheme? IMF supporters claim the organization exists to fight poverty in developing countries, but the evidence shows otherwise. At best IMF borrowers are governments of countries with little economic productivity; at worst the money ends up in the hands of corrupt dictators. Either way, most recipient nations end up with huge debts that they cannot service, which only adds to their poverty and instability. IMF money ultimately corrupts those countries it purports to help, by keeping afloat reckless political institutions that destroy their own economies.

In truth, Congress funds the IMF because of the corporate interests it subsidizes. The huge multinational banks and corporations love the IMF. Big banks used IMF funds- taxpayer funds- to bail themselves out from billions in losses after the Asian financial crisis. Big corporations obtain lucrative contracts for a wide variety of construction projects funded with IMF loans. It's a familiar game in Washington, with corporate welfare disguised as compassion for the poor.

The recent financial collapse in Argentina provides a perfect example of the folly of IMF "assistance."  Although the Argentine economy has been in serious trouble for several years, IMF loans with an incredibly low interest rate of 2.6% kept pouring into the country. According to Congressman Jim Saxton, Chairman of the Joint Economic Committee, this "continued lending over many years sustained and subsidized a bankrupt Argentine economic policy, whose collapse is now all the more serious. The IMF's generous subsidized bailouts lead to moral hazard problems, and enable shaky governments to pressure the IMF for even more funding or risk disaster." Yet unless Congress acts this year, U.S. taxpayers will be forced to pay for even more bad loans to equally unstable countries.

The IMF was a bad idea from the very beginning- economically, constitutionally, and morally. There is no justification for taxing working Americans so the federal government can bail out foreign leaders and Wall Street. Participation in the IMF costs us billions every year, billions that should be returned to taxpayers. Hopefully the Argentine debacle will cause Congress to rethink our foolish participation in the IMF.