International Business: Commentary
COMMENTARY: WHAT THE IMF NEEDS IS A GOOD ALARM SYSTEM
The morning after the International Monetary Fund had stepped into the breach to help Mexico avert a government default, IMF Managing Director Michel Camdessus was already congratulating himself. "The IMF has risen to this challenge with assistance in an exceptional scale," he said of the fund's $17.8 billion loan to Mexico--by far the largest it has ever made.
Despite Camdessus' boast, the Mexican affair was not the fund's shining hour. True, the IMF loan--part of a $49.8 billion bailout engineered by the Group of Seven industrial nations--staved off a global financial panic. But where was the IMF six months ago, before Mexico's deteriorating situation turned into a crisis? Casting out a global safety net is well and good, but Camdessus' top priority should have been operating an early warning system that detects problems in emerging economies before they become catastrophes.
FLOWING FREELY. Camdessus seems intent on making the IMF a central bank for the world, but the Mexican panic suggests a more critical role: The IMF should become a global Securities & Exchange Commission that exerts pressure on governments to provide full disclosure of their financial health. With capital flowing freely into exotic markets from Bangkok to Buenos Aires, investors need greater assurances that emerging nations aren't harboring nasty financial secrets.
The IMF conducts rigorous surveillance of 60 countries with outstanding credit, but the other 119 member nations are subject to lax monitoring. That was the case with Mexico, which gave the IMF outdated reports that masked its dwindling hard-currency reserves.
Beyond improving its monitoring, the IMF must be willing to blow the whistle on irresponsible governments. This means lifting the veil of secrecy that shrouds IMF operations: Nearly every loan document and accompanying internal analysis is stamped "confidential," and not one of these documents has been declassified in the 49-year history of the institution.
REFRESHING CANDOR. IMF officials contend that sounding the alarm too loudly can itself trigger a panic. True, but it's still better to deal with a brewing problem sooner than later. "If the IMF had been more candid about Mexico's problems, it would have caused this crisis a year ago--but the situation would have been much smaller and more easily contained," says David Hale, chief economist for Kemper Financial Services Inc.
To its credit, the IMF seems ready to mend its ways. On Feb. 7, Camdessus vowed to increase surveillance of economies in "convalescence" to avert future panics--and he confessed that 10 unidentified ones could be headed for crises this year. For the fund, the quintessential immovable bureaucracy, even such a limited display of candor is refreshing. Now it's time for the IMF to adopt a new role as global capital cop--and Camdessus soon should start naming some suspects.By Dean Foust