LOS ANGELES — With the free-market Bush administration settling into power, what’s to become of those controversial twin pillars of the world economic system, the International Monetary Fund and the World Bank? Those two institutions — both based in Washington, D.C. and sharing reputations for arrogance and secrecy — are exactly what critics have their eye on when they discuss reforming the “global economic architecture.”
But for the twin pillars, reform may be the least of their worries; it seems the Bush administration isn’t sure we need them at all anymore. Paul O’Neill, former head of the aluminum giant Alcoa and now Bush’s Treasury secretary, says he is skeptical of the efficacy of any external, institutional intervention in the operation of markets, international or domestic, and doubts whether the World Bank and the IMF can do much good over the long run. Bailouts of any kind, whether by national governments or international agencies, rankle his fundamentalist free-market spirit.
Until recently, this true-blue Republican ideology was most often expressed in academic papers that few people read, and on television talk shows that few watched. Activist Clinton administration officials, like former Treasury Secretary Robert Rubin and his successor, Lawrence Summers, went about the business of utilizing the World Bank and IMF to help bail out one troubled Asian economy after another. But now that Republicans are in power, the dismantling — or at least the dramatic downsizing — of the two venerable institutions is suddenly no longer unthinkable.
Even so, it’s difficult to imagine the massive global economy operating smoothly without something like an IMF or World Bank in the wings. Who else will step in when the free market goes haywire and economists turn to chaos theory for answers?
For chaos does happen. These days, unprecedented amounts of currency move in and out of nations at the speed of a mouse click, throwing even well-ordered economies out of balance. When weakened national currencies lose value overnight, other, healthier currencies can catch cold the next day.
What’s the remedy? Sometimes a rapid intervention and infusion of outside aid, as part of a proper program of renewal and reform, is necessary to prevent damage from overflowing borders and to reduce the potential for large-scale turmoil.
The United States needs to keep in mind that only the richest country in the world can afford to talk about abolishing the IMF and the World Bank. That’s because this country doesn’t need the agencies. But when more than 1 billion people have to live on less than $1 a day (and half a billion of those people are in South Asia), and when half the world’s population makes do on less than $2 a day, corporate successes like O’Neill need to exercise a little more awareness of others’ plight before they talk about vaporizing the few institutions committed to people who cannot fend for themselves.
Moreover, this is hardly the best time to discuss dismantling either the IMF or the World Bank. Thailand has a shaky new government and is still digging out from the damage of the 1997 financial meltdown. The Philippines — where a coalition of forces recently threw out a corrupt but democratically elected president — has a new leader, Gloria Macapagal-Arroyo, who will need both time and international assistance to implement true economic reform. Indonesia is still a mess. And if that’s not enough for the worry chart, there’s the titanic Japanese economy, which remains on red alert even as rumors swirl about the imminence of Prime Minister Yoshiro Mori’s resignation. And late last week, Japan’s debt-riddled banks and financial instability earned it a humiliating credit downgrade from the influential Standard and Poor’s rating agency.
Finally, there’s the sudden uncertainty about the U.S. economy, which seemed not so long ago to be invincible. How long can the rest of the world hope to stay on its feet if both the No. 1 and No. 2 economies are down at the same time?
The prudent course for the new administration is not eventual evisceration of the IMF and World Bank, but speedy reform. To this end, there already exists a blueprint well worth considering. It’s called the Meltzer Commission report, which last year called for reshaping the IMF into a crisis-intervention fire brigade and for narrowing the World Bank’s gigantic mission into that of a world poverty agency. The commission, tasked and financed by Congress, and chaired by respected economist Allan Meltzer, returned a carefully considered plan that neither praised the IMF and World Bank nor buried them, but instead offered a third way.
In truth, the world’s economic systems cannot live without something like these two institutions, even if some of the Bush people can.
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