Wall Street Journal - September 30, 1999
FEDERAL RESERVE OFTEN TOSSES OUT IMF ADVICE ON ECONOMIC POLICY
By Michael M. Phillips
Staff Reporter Of The Wall Street Journal
WASHINGTON -- Which country has received the worst economic advice
from the International Monetary Fund over the past few years? South
Korea? Russia? Brazil?
Think again. It might be the U.S.
Just as they do for every member nation from Mozambique to Pakistan,
IMF experts give the U.S. economic team an annual once-over. Every
year IMF chief Michel Camdessus sits down to lunch in the Fed's
executive dining room and coaches U.S. Federal Reserve Chairman Alan
Greenspan on interest-rate policy. Time and again in recent years,
the IMF has laid out an aggressive game plan -- the Fed should boost
interest rates to stave off the threat of inflation.
Time and again, the Fed has nodded politely and, for the most part,
left interest rates alone. And for the last few years, the U.S.
economy has continued to hum along.
Diplomatic Terms
"I wouldn't say" IMF advice "has a heck of a lot of weight -- I
wouldn't say it's ignored either," one U.S. official observes
diplomatically.
A less diplomatic version of the play: Camdessus to Greenspan to trash can.
The annual ritual highlights one reason the IMF, the international
financial fireman, is in such political trouble in Washington these
days. The IMF's track record, particularly in scandal-ridden Russia,
has made it an irresistible target for Republicans jostling for
position in the 2000 presidential race. Right or wrong, critics think
the IMF gives bad advice. And, they say, if it can't give sound
advice to the U.S., what hope is there for the poor countries that
count on the IMF's steady hand?
"The prescriptions they recommend are almost uniformly bad," says GOP
presidential hopeful Steve Forbes, who plans to call for the IMF's
abolition on Monday in Bretton Woods, N.H., where the institution was
born in 1944. "They're like Typhoid Mary. Wherever they go, riots and
depression seem to follow."
Certainly, that's hyperbole. To be fair, many economists think the
IMF has prescribed harsh, but necessary medicine, particularly during
the global financial crisis that started in 1997. And the IMF hasn't
been alone in urging the Fed to raise rates in recent years. Many
Wall Street economists also believed that tight labor markets would
eventually push up wages and prices and force the Fed's hand. At
times it has seemed as if Mr. Greenspan was in the minority in his
belief that technology had made workers so productive that companies
could raise wages without jacking up prices.
In fact, the IMF has hit its share of bull's-eyes. Like when Mr.
Camdessus pushed the U.S. Treasury -- as he began doing even when it
made the Clinton administration uncomfortable -- to get rid of the
federal budget deficit. And the Heritage Foundation, a conservative
think tank, just completed a study showing that the IMF's economic
forecasts for the U.S. have largely been on target.
"The advice with respect to the U.S. has been remarkably close to
what the policy has been," says Michael Mussa, the IMF's chief
economist.
Opposite Tracks
Perhaps. But at key junctures over the past few years, the IMF has
urged the Fed to move in one direction, and Mr. Greenspan, following
his instincts, has headed in the other.
Take July 1997, just weeks after the Thai baht collapsed and sparked
what was to balloon into a full-fledged global financial crisis. On
July 28, the IMF board of directors, including representatives of
Russia, China and Japan, gathered at their Washington headquarters to
discuss the U.S. economic outlook. Many of the directors advocated "a
further, moderate and pre-emptive tightening" of credit policy to
forestall inflation, according to an official summary of the meeting....
[full article in LBO archives 9/30/99]
> -----Original Message-----
> From: [EMAIL PROTECTED]
> [mailto:[EMAIL PROTECTED]]On Behalf Of Michael Perelman
> Sent: Monday, August 28, 2000 6:15 PM
> To: [EMAIL PROTECTED]
> Subject: [PEN-L:923] The IMF and the Presidential Candidates
>
>
> Stanley Fisher of the IMF has warned that the proposed tax cuts are too
> inflationary. Which presidential candidate will buckle under?
>
> Do any poor countries not the hypocrasy of the US pushing the weak to
> follow IMF dictates.
>
> --
> Michael Perelman
> Economics Department
> California State University
> Chico, CA 95929
>
> Tel. 530-898-5321
> E-Mail [EMAIL PROTECTED]
>
