Action Plan for the IMF
Anyone who questions whether we are living in a global economy needs to reflect carefully on the financial turmoil of the past few weeks. We can no longer escape the issue of how to manage in a world in which economic currents have no frontiers but our instruments to deal with them do.</br></br>The International Monetary Fund lies at the center of this storm. It is the only financial institution that has some semblance of global influence. The IMF, however, is the subject of considerable controversy. The traditional approach of the IMF is to lay the foundation for healthy economic growth by restraining government intervention in the economies, ensuring sound currencies and encouraging open markets. Its policies have been a major factor in spurring unprecedented changes in the global economy.</br></br>Current efforts to stabilize the Asian economies, however, are far different and more complex. Gone is the luxury of an exuberant economic environment. Commodity prices are plummeting. Interest rates in the affected countries are soaring, crippling banks and bankrupting business. Manufacturing plants throughout Asia have idle excess capacity. Unemployment is rising sharply. Devaluations and the fall of capital markets have drained substantial liquidity from global markets. The losses on the U.S. stock market alone since July are equivalent to the total annual GDP of all of the Latin American nations combined. Governments cannot balance budgets in the face of collapsing tax receipts, impeding their capacity to stimulate their economies.</br></br>The problem for the IMF, however, is that the issue of corruption that got us into this predicament is just as real. As we see in Russia and many countries of Asia, this is the most pernicious contagion that has infected many banks and commercial enterprises. The result has been illicit enrichment and misallocation of resources, which taxpayers the world over are now being asked to pay. This will not do.</br></br>The deep concerns about corruption reflected in the debate in Congress about IMF funding have to be addressed in formulating new policies. On the positive side, strong U.S. and European economies still exert considerable pull to lift the faltering economies of the developing world. The countries of Asia are now yielding large current-account surpluses, which could help them restore their economies if they have access to bridge capital. The issue is how to restore global confidence while not abetting corrupt practices or rewarding ill-considered lending.