Every day brings a fresh bad report from Asia. That region’s go-go mid- 1990s, fueled by giant Western investment and loans, have run aground. It turns out that great chunks of the money were converted to local business deals driven not by market imperatives but by controlling elites operating in — how shall we put it? — a rather less than “transparent” political and financial climate. Many of those deals have since tanked. Overseas money has fled. Local economies, sucked dry of cash, have retrenched. Asian governments have devalued their currencies. And Wall Street, worried about its own ongoing stake in the East and concerned that the export-dependent U.S. equities it trades will suffer, is jittery.
So the word on everybody’s lips in Washington is: “bailout.” And whenever the prospect of American participation in such an international financial exercise arises, a certain reflexive debate arises with it. Your leftward- leaning populists say “no,” decrying U.S. support for Asian regimes that will use outside support to despoil the environment — and maintain their job- destroying exports to America. Rep. Bernie Sanders of Vermont calls it ” socialism for the rich,” since it protects from loss those American fat-cats who made bum Asian investments in the first place. And if there’s going to be any such socialism, he says, apparently without appreciating the irony, it must be heavily regulated.
Your rightward-leaning populists embrace most of the Sanders line, minus the enviro element, in keeping with their overall push for American withdrawal from the world stage. Further up the ladder of policy-wonkery, conservative think tanks use the bailout question as an opportunity to advance longstanding complaints against multilateral financial institutions in general, and the International Monetary Fund in particular. They want us out of the IMF, and by extension they want the IMF to die — that the global free market might work its magic more efficiently.
We’re not altogether comfortable with this talk. Environmental regulation is irrelevant to Asia’s present woe. The deflationary spiral on that continent promises more cheap exports to the United States, not fewer, so casting Asia adrift might actually constitute a threat to Pat Buchanan’s factory workers. Above all, a Washington that pretends to world leadership cannot simply refuse all aid to struggling Asian economies if such aid can be provided intelligently and effectively. In fact, against the very small but hardly nonexistent risk that the “contagion” will spread outside Asia and produce a painful global slowdown, an American ostrich act just now would be positively irresponsible. “Whatever happens, happens” is not a foreign policy, however temporarily consistent with free-market principle it might appear.
In any case, notwithstanding the particular merits of the flat-out “Just say no” argument, it is most probably a loser. When confronted with large and complicated questions in a crisis atmosphere, American politics almost always defaults to the “grown-up” position. And if plain-and-simple rejectionism is allowed to occupy one half of the coming bailout debate, then the “grown-up” position will be that of the Clinton administration and the “world community” and financial “experts” everywhere. It seems to us these people should not be granted such an easy win. Because their record, frankly, stinks.
If blame for the Asian meltdown can be apportioned fairly, after all, then the Clinton administration must surely eat a healthy plateful. Flooding that continent with Western investment — and insisting that the character of the locals who’d be spending it didn’t matter — was the president’s principal foreign-policy accomplishment from 1994 through 1997. The administration was very late to discover what now seem, with benefit of hindsight, the predictable results of that initiative. As late as November, the president was still describing the metastasizing slump in Asia as a mere “glitch.” And the president’s grown-up friends, who have more immediate obligations to help repair this “glitch,” have hardly done better. The collapse of the South Korean economy took the IMF completely by surprise. And by its own recent concession, the Fund actually made things worse in Indonesia.
Yet here we have Treasury secretary Robert Rubin flying around the globe, having meetings intended to “restore confidence.” And secretary of state Madeleine Albright speechifying vaporously about how “the world economy is so interconnected” and how our international organizations “must have the resources required to leverage reform, restore stability, and spur new growth. ” Pressed for details — what does all this mean, exactly? — they do little more than invoke the “successful” precedent of Mexico.
The analogy is imprecise. That earlier crisis involved country-to-country debt, and the United States could not “repossess” the Mexican government. The Asian crisis is a much subtler circumstance of misbegotten private investment. In which the Mexican precedent, truth be told, is partially implicated. Any time Washington declares some financial arrangement “too big to fail,” it implicitly offers the same guarantee — and the same spur to irresponsible investment — for every bigger financial arrangement. The whole of Asia, for example.
There is, as it happens, underneath all this cosmic conversation about ” engagement” and its opposite ideological pole, a concrete issue facing Congress: What’s to be done? The White House wants very badly to do it, but can’t or won’t say what it is. In fact, the administration wants to do it so badly that it is doing it already. The Treasury department, as its legal authority allows, has committed $ 8 billion from the “exchange stabilization fund” to a large-scale, multilateral financial rescue plan for Asia.
Last year, the administration also sought from Congress a $ 3.5 billion appropriation for a brand new, supplemental IMF reserve fund. That request, by itself, was not particularly controversial, since it was essentially “cost- free”: Every U.S. dollar in the proposed fund would represent a U.S. credit against existing IMF gold reserves. The appropriation was blocked, however, amidst unrelated debate about the administration’s international population- control policies. And it is still on the table. As soon as Congress returns from recess, the White House will want it passed. So that the IMF can spend it in Asia.
Most important, the administration will want to speed up a much larger, roughly $ 14.5 billion American contribution to general IMF operating accounts, again so the Fund can spend it in Asia. Every few years, the United States “re-ups” to the IMF. Under ordinary circumstances, this regular appropriation would be debated in May, voted on during the summer, and signed into law with the rest of the budget this fall, for ultimate disbursement during the 1999 fiscal year. But the White House can’t wait. It will attempt to attach the IMF money to a supplemental defense bill, maybe as early as next month. We think Republicans should refuse to go along. For now.
American international economic policy has operated on “responsible” auto- pilot for too long already. A fresh, immediate, unthinking infusion of cash to that policy is a bad idea. But rather than foreclose U.S. influence and options in Asia by killing off the possibility of such aid outright, Republicans in Congress should demand that the Clinton administration explicitly state its plans. In other words, Republicans in Congress should offer the country what we have never had: a real debate about precisely what economic reforms are necessary elsewhere in the world, and under what circumstances we are prepared to fund them.
Where a big new pot of IMF money is concerned, better late than never. And much better late than right away.
David Tell, for the Editors
