[Congressional Record Volume 144, Number 5 (Tuesday, February 3, 1998)]
[Extensions of Remarks]
[Pages E72-E73]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    THE INTERNATIONAL MONETARY FUND

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                       Tuesday, February 3, 1998

  Mr. HAMILTON. Mr. Speaker, I would like to bring to my colleagues' 
attention my monthly newsletter on foreign affairs from January 1998 
entitled The International Monetary Fund.
  I ask that this newsletter be printed in the Congressional Record.
  The newsletter follows:

                    The International Monetary Fund

       The chaos of the Great Depression, which led to the Second 
     World War convinced American leaders that economic crises 
     were key sources of international conflict. Presidents 
     Roosevelt and Truman took the lead in creating postwar 
     institutions to help stabilize economies, improve living 
     standards, and promote peace. One of the most important of 
     these is the International Monetary Fund (IMF). Though not 
     perfect, the IMF is vital to U.S. interests today.
       The IMF's purpose is to promote a stable international 
     financial environment, a prerequisite for expanding trade and 
     economic growth. The IMF gives financial advice to member 
     countries. When countries have trouble balancing their books, 
     the IMF provides loans in exchange for policy reforms. The 
     typical IMF prescription calls for spending cuts, higher 
     interest rates, and market-oriented reforms.
       IMF loans come primarily from the pooled contributions of 
     the Fund's 182 member countries. Each country's contribution, 
     or ``quota,'' is linked to the size of its economy, and quota 
     shares equal IMF voting shares. Because important IMF 
     decisions require an 85% majority vote, the U.S. voting share 
     of 18% gives us a veto over decisions we oppose.
       Contributions to the IMF have never cost U.S. taxpayers a 
     cent. When the IMF uses the funds we provide, it gives us an 
     interest-earning claim in return. U.S. contributions must be 
     authorized by Congress, but they have no impact on the 
     federal budget, and they do not require any spending.
       The most recent U.S. quota contribution to the IMF, valued 
     at $11.9 billion, occurred in 1992. Last year, IMF members 
     agreed to another quota increase. The U.S. share would be 
     about $14.5 billion. Two dozen IMF members, including the 
     U.S., have also agreed to make additional funds available in 
     an extraordinary crisis. The proposed $3.5 billion U.S. 
     contribution to this emergency credit line would require a 
     budgetary outlay only if these funds were used and not paid 
     back. The President will ask Congress to approve both IMF 
     funding requests later this year.
       U.S. interests. The IMF serves U.S. interests in many ways. 
     First, it promotes stability and prosperity by helping 
     countries work through economic difficulties. Second, the IMF 
     helps sustain an international environment conducive to trade 
     expansion and economic growth, which reduces poverty and 
     creates profitable markets for U.S. exports and investment. 
     Third, the IMF's loan conditions usually require countries to 
     adopt free-market reforms, which make them better trade and 
     investment partners. Fourth, the IMF distributes the burden 
     of stabilizing the international economy and responding to 
     crises--a task that might otherwise fall to the U.S. alone.
       For reasons of our own security and prosperity, it is not 
     in the U.S. interest for the economies of our trading 
     partners to collapse. The IMF uniquely possesses the policy 
     expertise and resources to help avert economic collapse and 
     keep the international financial system running smoothly. If 
     the IMF didn't exist, we'd have to create it.
       Criticism and changing roles. The IMF has long been a 
     target of criticism. One leading criticism is that the reform 
     conditions often attached to IMF loans--sharp budget cuts, 
     for example--cause a lot of economic pain and do nothing to 
     improve environmental, labor, or human rights conditions. The 
     IMF could be more sensitive to the economic and social 
     consequences of its reform prescriptions, but it is usually a 
     country's economic ``disease,'' not the IMF ``cure,'' that 
     causes most of the pain. Countries receiving IMF support have 
     a tough enough time implementing required financial reforms. 
     Asking them to achieve additional objectives during a crisis 
     could make the crisis unmanageable. Furthermore, economic 
     stability and growth will, over time, tend to improve 
     environmental, labor, and human rights conditions.
       A second criticism holds that the IMF shouldn't bail out 
     those who make bad decisions. An expectation that the IMF 
     will step in during an emergency will make investors and 
     governments more careless, increasing the risk of future 
     crises. IMF and U.S. officials agree that new strategies are 
     needed to ensure that investors and creditors bear more risk 
     for bad judgments.
       A third and related criticism holds that we are better off 
     doing nothing--letting markets clear. Market forces are 
     beneficial, but they can swing to extremes. Too much is at 
     risk to let markets alone resolve problems of financial 
     instability. We recognized long ago that institutions such as 
     the Federal Reserve System, the Securities and Exchange 
     Commission, and the Federal Deposit Insurance Corporation 
     protect the economy from the excesses of the market. Failing 
     to mount an international bailout could inflict great 
     economic pain on a lot of innocent citizens. A crisis in a 
     major U.S. export market could cost many U.S. jobs.
       A fourth criticism is that the IMF sometimes helps 
     developing countries--such as those now in crisis in Asia--
     that compete aggressively with U.S. exports and labor. Yet 
     withholding emergency support would only aggravate a 
     country's crisis, further reducing the value of its currency. 
     That would hurt U.S. exports and intensify the threat to U.S. 
     workers posed by imports.
       Finally, critics blame the IMF for failing to predict or 
     prevent financial crises. The IMF says its effectiveness is 
     hampered by countries that conceal bad economic data. To 
     address this problem, the U.S. and other key IMF members are 
     pressing for tough new disclosure standards.
       U.S. policy. The U.S. can do several things to strengthen 
     the IMF. First, Congress should approve the President's 
     funding requests for the IMF, because its resources have been 
     depleted by the Asian crises. Second, the U.S. must take the 
     lead in strengthening the international financial system and 
     creating an architecture to prevent and better manage 
     financial crises. We need to ensure that investors and 
     creditors pay a price for their mistakes, consistent with our 
     broader interest in preventing economic catastrophes. IMF 
     member countries must also be required to provide more 
     accurate, detailed, and timely economic data. Third, the

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     IMF needs to give social and economic considerations greater 
     weight in lending decisions. Finally, the IMF's largely 
     secretive mode of operating needs to be more accountable, 
     transparent, and open to public scrutiny.
       Conclusion. The United States took the lead in creating the 
     IMF. It has served U.S. interests for a half century. It is 
     not perfect, and it can be improved. Yet its contribution to 
     international financial stability, economic growth, and world 
     peace is immense. It deserves U.S. support.

     

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