[Congressional Record Volume 143, Number 160 (Thursday, November 13, 1997)]
[Extensions of Remarks]
[Pages E2348-E2349]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  REMARKS ON THE FOREIGN OPERATIONS APPROPRIATIONS CONFERENCE REPORT 
            REGARDING THE INTERNATIONAL MONETARY FUND [IMF]

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                      Thursday, November 13, 1997

  Mr. PAUL. Mr. Speaker, Congress wisely did not vote to appropriate 
$3.5 billion appropriation for the IMF which will be used to help 
finance the new arrangements to borrow [NAB]. These funds will not be 
used much differently than previous funds allocated to the IMF over the 
years under the GAB, or general arrangements to borrow. Regardless of 
what we are told and how this funding is described, these funds are 
used for more bailouts to countries in trouble and present a burden to 
the U.S. taxpayer.
  The IMF has a poor track record of preventing financial crises. ``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, reports 
William Simon, the former Secretary of the Treasury and the current 
president of the Olin Foundation, in a recent issue of the Wall Street 
Journal. 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 we fail to 
follow the sound judgment of the House and reject any additional IMF 
funding.
  Such moral hazard fears are widespread and well founded. ``[With 
outside assistance], governments may be encouraged to delay necessary 
policy reforms and investors may be tempted to continue pouting money 
into recklessly run economies on the assumption that they will be 
bailed out if things go wrong,'' writes Robert Choate in the Financial 
Times. Under the IMF's standard limits on borrowing, countries are 
limited to 150 percent of their respective quota. Thailand will get 
$3.9 billion from the IMF or 505 percent of its quota, and Indonesia 
will get $10.1 billion or 490 percent of its quota. While these 
allotments are larger than the IMF's own rules would normally allow, 
Mexico was offered $17.8 billion or 688 percent of its quota in 1995. 
What was the lesson Thailand and Indonesia learned from the IMF's 
treatment of Mexico?
  The generosity of several governments and international institutions 
towards Indonesia is likely to cause more problems than it resolves . . 
. Investors will be encouraged to take ever bigger risks in other 
emerging economies, confident that they too will be bailed out. This 
may already be happening: when word came on October 31st that an 
agreement had been reached with Indonesia, share prices rose in Brazil, 
another country where investors are worried about a currency collapse. 
If the IMF, and especially the Americans, stand ready to help the 
Indonesians, the markets seem to have concluded, they are certain to 
come to the aid of Brazil . . . The structure and size of the 
Indonesian loans package create worrying precedents,'' writes The 
Economist in the current issue.
  Although it is assumed that only Third World nations are bailed out, 
the United States has been a recipient of such funds when the dollar 
was under attack in the late 1970's. For every benefit there is a cost. 
One of the costs to those who receive funds will be the acceptance of 
conditionalities placed on them by the IMF which will advocate certain 
policies for those countries receiving the money. Generally, this deals 
with directives on taxes, spending , and deficits. Although currently 
our dollar and economy seem strong, we are nevertheless setting the 
stage for the day when the U.S. dollar will once again need to be 
bailed out along IMF surveillance and conditionalities on how to manage 
our own economy.***HD***History
  The IMF was set up by the Bretton Woods Agreement in 1944 and came 
into operation shortly after World War II. The original intent of the 
IMF was to permit short-term loans to prop up those currencies whose 
issuing countries had negative balance of payments under the pseudo 
fixed-exchange rates of the Bretton Woods Agreement. However, this 
entire system collapsed in the early 1970's, and the IMF has since then 
had to create a new job for itself. It now supports the economies of 
weaker nations by making structural long-term loans and bails out 
currencies that have come under attack such as in Mexico, Russia, 
Thailand, and most recently Indonesia.


                          Economics of the IMF

  This whole process is doomed to failure. Some knowledgeable 
economists, even in the 1940's, predicted that the concept of the IMF 
would not work and they were vindicated in 1971 when the fixed exchange 
rates established under Bretton Wood's system collapsed. Bretton Woods 
institutionalized the notion that the IMF could be made of the lender 
of last resort to all the countries of the world by bailing out the 
weaker currencies, just as the Federal Reserve portends to be the 
lender of last resort to our domestic banks. The problem is that this 
type of insurance encourages a recklessness monetary idea.
  The floating rates, which have existed since the breakdown of Bretton 
Woods in 1971, have functioned only with the assistance of the free-
market floating rate system. Nevertheless, fluctuating fiat currencies 
eventually lead to chaos as we currently see in the Asian markets. 
Worldwide currency and financial conditions today are exactly opposite 
of what a market determined single hard currency would produce. To the 
extent governments manipulate the value of their currencies at will, we 
can expect sharp and sudden adjustments in the economies of the world.
  The IMF's policies resulted in international inflationism with the 
use of the special drawing rights [SDR's] and its guarantee that the 
weak currencies will bail out the even weaker currencies. It is through 
the IMF, along with the World Bank, that international economic 
planning is pursued while enhancing the concept of international 
government. The IMF, through the manipulation and bailing out of 
certain currencies, serves as a welfare tool of transferring real 
wealth from the richer to the poorer countries. The mechanism of the 
IMF, over the years, has also served to bail out banks which 
overextended themselves investing poor nations but do not want to be 
left holding the bag. Likewise, corporations which are encouraged to 
invest overseas through our inappropriate loan subsidies, such as the 
Overseas Private Investment Corporation and the Export-Import Bank, are 
also able to socialize the cost of risky ventures when these weaker 
economies predictably threaten a default.

  The IMF comes to the rescue of the bankers and the corporations as 
well as the wealthy individuals of the particular countries being 
bailed out. For the most part the real cost falls on the United States' 
taxpayers because they pay a disproportionate share of the IMF funding. 
Thus, the American taxpayer suffers through a lower standard of living. 
If we were to put purple dye on the bills that we were sending to 
Indonesia today, the bankers and investors on Wall Street would be 
walking around with purple pockets tomorrow.


                         legislative situation

  The $3.5 billion new appropriation for the IMF was not brought to the 
House floor in the Conference Report of the Foreign Operations 
Appropriations bill. It was not funded in the House version of the 
foreign ops bill but did appear fully funded in the Senate version. The

[[Page E2349]]

exact reason why it was not in the House version is not clear, but 
quite possibly it was to avoid open discussion about this new funding 
program that we are about to embark on at the U.S. taxpayer's expense. 
Because of this process, we have had no House debate on this issue, 
there has been no expression of any interest in the House and certainly 
only a minimum understanding regarding this new funding. There are many 
powerful special interests that influence complicated legislation like 
this and easily skirt the attention of most Members of Congress.
  The most facetious argument made by the political supporters of this 
appropriation, as has been the case over the decades, is that there is 
no cost for it. Although it requires an appropriation, the claim is 
that this is merely a transfer of assets between the United States and 
the IMF. The argument goes that if we give the IMF $3.5 billion, it, in 
turn, will give us a financial instrument indicating that we are 
entitled to the $3.5 billion the IMF pays interest on the funds they 
hold. The fallacy, of course, is that this money is taken out of the 
economy, removed from available sources of credit and is no longer 
available to the American citizen. Just because the CBO calls this a 
transfer of assets and is not counted in the budget deficit does not 
make it harmless, to say the least. These funds are justified in the 
name of protecting the international monetary system which is nothing 
more than bailing out countries which have spent and inflated more than 
others and hope to receive their salvation at U.S. taxpayer expense.
  No additional funding should be given to the IMF. The IMF is no 
longer fulfilling its original intent and is now actually involved in 
projects which were never authorized. Even Bill Simon and George 
Schultz, both former Secretaries of the Treasury, advocate abolishing 
the IMF. The development institution mission that the IMF now claims to 
have converted itself into merely duplicates the efforts of other 
institutions that have the authority and expertise to act as one. 
Groups as diverse as the liberatian Cato Institute and the Friends of 
the Earth, a worldwide network of environmental organizations, point 
out that the IMF is not a development organization and should get out 
of the development business.
  The entire Mexico bailout a couple of years ago required more than 
$50 billion, mostly U.S. taxpayers' money, to temporarily stabilize 
Mexico's financial markets. However, this was primarily done to bail 
out the Government of Mexico, as well as bankers and investors on Wall 
Street. Since the IMF is incapable of preventing problems, in time the 
market will make it irrelevant. But in the meantime, the process will 
continue to cost the American taxpayers a lot of money regardless of 
whether or not it's accounted for in the deficit. The least that should 
be done is that if we feel compelled to pour more money into the IMF, 
we should demand the return of the U.S. gold that the IMF holds. 
According to the central bankers of the world, gold has been totally 
discredited, and the managers of fiat currencies claim to manage quite 
well without it. If this is the case, there is no sound reason for the 
IMF to hold gold and, thus, the gold should be restituted, or dispersed 
to the respective countries. The IMF has spent more than $170 billion 
since the 1960's, and since 1978 there has been no monetary role for 
gold according to central bankers.

  The IMF is nothing more than an international engine for inflation 
fueled by the creation of credit. The IMF's special drawing rights is 
an international fiat currency that, through the dilution effect, the 
weak currencies bail out the even weaker ones. Even if there is only a 
minimal increase in taxation necessary to finance IMF appropriations, 
the resulting inflationary impact is something that cannot be avoided 
or ignored.
  There is no economic nor political benefit to the United States to 
continue participating in the IMF. Financial conditions around the 
world are now as precarious as they have ever been and a financial 
bubble built on the inflationary nature of all fiat currencies, along 
with IMF monetary mischief, warrants immediate and serious discussion 
regarding the need for a sound currency based on real value.
  All financial bubbles and all inflations require corrections by 
recessions or depressions. These unwise central bank policies always 
result in these conditions. Although it might be tempting to divert 
blame from the central bankers of the world, including our Federal 
Reserve and the IMF, the responsibility truly lies with the U.S. 
Congress which permits these policies to exist by abdicating 
responsibility over monetary policy and appropriates funds to the IMF 
every time it is asked.
  In time, the dollar will surely be on the receiving end of negative 
market forces. The dollar as a reserve currency has enjoyed the benefit 
of foreign central banks willing to hold them while we merrily march on 
with our inflationary policy and deficit financing. However, no country 
can pursue a policy that perpetuates huge negative balance of payments 
and negative balances of trade for extended periods of time. Eventually 
those dollars must return to their origin and devalue its existing 
currency. If one is concerned about the seriousness of the recent 
crises in Mexico, Indonesia, Thailand and elsewhere in the Far East, 
one should be that much more concerned about what will happen when the 
target becomes the United States dollar. This will probably occur after 
there is a definite downturn in our economy with escalating deficits. 
The mirage of low deficits that some claim for the U.S. Federal budget 
will be replaced by the reality that we are spending our children's 
future by borrowing hundreds of billions of dollars each year from the 
various trust funds. Today, inflating the dollar to bail out a weaker 
currency may give the appearance of working, but once the tables are 
turned, dollar inflation, in order to bail out the dollar or the U.S. 
economy, will do exactly the opposite.
  The time to correct this problem is now. The U.S. House should vote 
down funding $3.5 billion to perpetuate an international monetary 
system of finance which is doomed to fail, which is unfair, and which 
serves the powerful special interests at the expense of the American 
taxpayer--if it ever comes up for a vote. Unfortunately though, 
economic and financial chaos around the world will only serve as an 
excuse for the believers in strong international government to further 
intervene and pursue their goals. But what is needed is less 
government, less inflation and less international management of our 
currencies and our economy and more emphasis on a sound currency, free 
markets, and individual liberty.

                          ____________________