Saturday, December 10, 2011

The IMF is actually a wonderful concept

As long as you keep it apolitical.  The concept is simple, yet remarkably effective.  Nations with lots of capital or at least access to capital at a low cost help emerging economies.  The benefits to both sides are numerous and substantial.  Obviously, the less developed countries can avail themselves of the benefits of inexpensive capital to grow their GNPs.  Along the way their citizens' standard of living goes up.  Since the loans come with stringent conditions, those countries are forced into a measure of fiscal discipline that they ordinarily would not have the political will to impose on themselves.  Thus their economies are expanded and poised for long term growth.  The developed countries also benefit in a myriad of ways.  Countries with growing, stable economies and rising standards of living rarely foster revolutions or aggression towards neighbors.  Also, peoples with higher standards of living become good consumers for our goods and services.  And all that is apart from the fact that investing in the IMF is profitable.  The fiscal discipline imposed has historically resulted in a 100% repayment rate on loans--with interest.  Win, win.  However, a basic premise of the IMF is that the loans will be underwritten based upon financial factors, not political ones.  The Euro zone wants to change that, and things will get interesting.  There is tremendous political pressure across the Atlantic to have the IMF bail out Italy and Spain.  But imposing the draconian conditions on the loan that would ensure repayment would cause riots in the Italian and Spanish streets--and potential problems in the budding Sarkozy/ Merkel romance.  Hmmmm.  But wait! It gets better.  We all know Obama would love to make nicey nice with his Euro buddies and give our cash to the IMF without exacting the appropriate fiscal constraints on the spendthrift Mediterranean mates.  And the Lord knows he doesn't ever worry about paying for things when he can just write a check.  The only problem is that there is an election coming up.  With an electorate that is pissed about the loans to the too big to fail banks (including a bunch in Europe).  So poor Barack is once again caught in the middle of his once adoring Euro buddies, his "its only (someone else's) money" instinct, and an already mad as a wet hornet electorate.  Yup, its gonna get interesting.


Borepatch said...

The old saw is that foreign aid is poor people in rich countries giving money to rich people in poor countries. To the extent that the IMF lessens the incentive for good governance in poorer countries (who almost all have governance problems), it retards growth.

Wolfman said...

Another factor is misuse and enemy action. Whether rich people in poor countries or poor people all around, or any combination thereof, there will be a certain amount of fraud and a certain minority that will look for advantage. When there is limited oversight, the fraud takes a larger percentage of the whole. When programs are designed to help the poor, or the unfortunate, etc., the instinct of the masses is to grant the money, then investigate later (look into medicare/medicaid fraud). Thus, a system that is designed to be altruistic automatically triggers my suspicion.