[Congressional Record Volume 143, Number 145 (Friday, October 24, 1997)]
[Extensions of Remarks]
[Page E2075]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            ABOLISH THE IMF

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                             HON. RON PAUL

                                of texas

                    in the house of representatives

                       Thursday, October 23, 1997

  Mr. PAUL. Mr. Speaker, it has recently come to my attention that 
William E. Simon has publicly called for the Congress to reject the 
Clinton proposal to approve $3.5 billion in new funding for the 
International Monetary Fund (IMF). He points out that the IMF was 
established over 50 years ago as an institution to maintain the Bretton 
Woods system of stable exchange rates that the world rejected in the 
early 1970's. The IMF has a poor track record. ``All of the major 
currency and banking crises of the last five years have occurred under 
conditions of heightened surveillance by the IMF,'' according to 
Gregory Fossedal, a leading expert on the subject. George Schultz, the 
former Secretary of State and of the Treasury, has also called for the 
IMF's elimination. Wisely, the House of Representatives did not include 
any new appropriation for the IMF. It is hoped that the conference 
committee will act as prudently.
  Mr. Simon, the former Secretary of the Treasury and the current 
president of the Olin Foundation, authored in today's issue of the Wall 
Street Journal an incisive article on the subject that I would like to 
include in the Record. This article clearly explains why the IMF ``may 
actually promote crises, because governments often resist sound 
economic and financial policies * * * because they know that the IMF 
will be there to bail them out in the event of a crisis.'' We should 
add that the IMF will be bailing them out with U.S. taxpayers' money if 
the conference committee fails to follow the sound judgment of the 
House and reject any additional IMF funding.

             [From the Wall Street Journal, Oct. 23, 1997]

                            Abolish the IMF

                         (By William E. Simon)

       The Clinton administration is asking Congress to approve 
     $3.5 billion in additional funding this year for the 
     International Monetary Fund. Congress should not only reject 
     this proposal, but also take the long overdue step of ending 
     all future funding for the IMF. As a practical matter, the 
     institution cannot continue to exist without the 
     participation of the most powerful nation in the world. By 
     withdrawing its funding, then, the U.S. can take a leadership 
     role in putting this outdated organization out of business.
       The IMF is ineffective, unnecessary and obsolete. It was 
     established after World War II, together with the World Bank, 
     to promote trade and development in an international economy 
     that had been torn apart by two decades of depression and 
     war. In the system of fixed exchange rates established by the 
     Bretton Woods agreements, the IMF's purpose was to provide 
     short-term loans to countries experiencing temporary problems 
     with their balances of payments. This was an important 
     function during the period following the war, and the IMF 
     generally performed it quite well.
       But this function became obsolete in the early 1970's when 
     the world abandoned the Bretton Woods system in favor of the 
     current system, in which currency values are set by the 
     market. Instead of going out of business as that new system 
     matured, the bureaucrats at the IMF invented a new function 
     for themselves--namely, to provide so-called structural 
     adjustment loans to countries that are, for various reasons, 
     deeply in debt. These loans are granted on the condition that 
     the recipient countries take steps to reduce their debt, 
     often by increasing taxes and reducing government spending. 
     This mission, of course, was never contemplated in the IMF's 
     original charter; indeed, these structural adjustment loans 
     look very much like the development loans that are supposedly 
     under the purview of the World Bank.
       Many critics of the IMF point out that these loans have 
     been quite ineffective in preventing currency crises and in 
     promoting stable economic growth in developing countries. 
     Quite the contrary, as these critics say, the IMF may 
     actually promote crises, because governments often resist 
     sound economic and financial policies (which may be 
     unpopular) because they know that the IMF will be there to 
     bail them out in the event of a crisis. As Gregory Fossedal, 
     a leading expert on the IMF, has pointed out, ``All of the 
     major currency and banking crises of the last five years have 
     occurred under conditions of heightened surveillance by the 
     IMF.'' These include the crises in Mexico in 1994, in Africa 
     in 1995 and in Thailand, Korea and Malaysia in 1997. The IMF, 
     with the help of the U.S., has now bailed Mexico out four 
     times since 1976, and it will no doubt do so again and again 
     unless the IMF is put out of business once and for all.
       Because the IMF has no legitimate function in our present 
     system of floating exchange rates, we can eliminate it, and 
     safely rely on private institutions, operating in the context 
     of a free market, to provide liquidity and capital for 
     developing nations, just as they do for the industrial 
     nations.
       As a former secretary of the Treasury, I do not lightly 
     call for the elimination of a financial institution that has 
     been in operation for more than 50 years, and that served a 
     pivotal role in the international economy in the period 
     following World War II. It is obvious, however, that the IMF 
     no longer serves a constructive role in the world economy, 
     and has not done so since the 1970s. We should therefore have 
     the courage to close it down--and the most effective way to 
     accomplish this goal would be to withdraw U.S. funding.
       A few years ago, such a call to end the IMF would have been 
     attacked on all sides as an extreme and highly controversial 
     recommendation. But today a growing number of respected 
     observers agree that the organization is no longer needed. 
     George Shultz, the esteemed former secretary of state and of 
     the Treasury, has recently called for the elimination of the 
     IMF. In a 1995 lecture before members of the American 
     Economic Association, Mr. Shultz observed that ``the IMF has 
     more money than mission.'' As a consequence, he said, we 
     should ``merge this outmoded institution with the World Bank, 
     and create a charter for the new organization that encourages 
     emphasis on private contributions to economic development.'' 
     This would make a great deal of practical sense.
       The House and Senate now have a golden opportunity to force 
     the long overdue elimination of the IMF. There is no longer 
     any reason to burden taxpayers with the expenses of this 
     outdated institution.

     

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