When it comes to new U.S. funding for the International Monetary Fund, Representative Richard K. Armey is right on many points but wrong on the key one. The House majority leader from Texas is absolutely correct in criticizing the IMF's penchant for seeking higher taxes from every country it bails out. He could even go further and say the IMF's demands for higher interest rates everywhere, every time, are bad policy too. Where Armey errs is in trying to punish the IMF by starving it of money. It's better for Washington to pressure IMF officials to switch from austerity policies to pro-growth ones. It's truly a bad idea to kill off the only global institution operating much like a central bank in a world made turbulent by the spread of market capitalism.
The fact is that intense criticism already has made the IMF change course in Asia. The IMF is letting Korea and Thailand lower interest rates and boost government spending to spur growth. That's a tacit recognition that the IMF misread the Asian financial crisis last year. Its initial demands for tight monetary policy and fiscal restraint helped turn a serious financial crisis into an economic nightmare. The Asian flu was brought on by private-sector overborrowing and overbuilding. Unlike Mexico, Asia had governments with budget surpluses and high savings rates. True, the IMF should encourage even more easing so the economies will begin growing again. But the calls for a policy shift are being heeded.
What Armey and other IMF critics are missing is the organization's evangelical role in spreading market capitalism. Misguided though the IMF may be in monetary and fiscal policy, it is doing Adam Smith's work in demanding that client countries open their economies. In Russia, Indonesia, Korea, and elsewhere, it requires the end of monopolies, transparency in banking, accountability within corporations, and foreign investment in exchange for emergency loans. These are the building blocks of a market economy. Congressional critics, quick to blast the IMF for its policy failings, are silent when it comes to applauding its successes.
It's time for Congress to declare victory and appropriate the IMF funding. Half the world is making a hard transition from communism and state capitalism to a market economy. It's in everyone's interest, including that of the world's largest exporter, the U.S., to back the one international financial institution that can smooth the bumps along the way.