Magazine article Modern Trader

IMF: Friend or Foe?

Magazine article Modern Trader

IMF: Friend or Foe?

Article excerpt

Before the International Monetary Fund (IMF) underestimated the cost of bailing out Indonesia, it had been taking the right steps in exterminating the Asian bug that has stung so many economies in the region. But now that the United States is being asked to contribute more to the IMF ($18 billion), some critics now say agencies such as the IMF simply are pilfering and redistributing U.S. wealth. Others worry America's credit is being put at risk. And there are those who suggest the best action to take is none at all, thus allowing failed Asian institutions to confront bankruptcy.

In response to these arguments, America earns interest on the IMF contribution, and therefore it doesn't cost taxpayers a cent. What it does is ensure that the fund has enough money to assist countries that experience economic trouble. Also, the fund has had no big defaults in its history and carries about $40 billion in gold reserves. Not only does America earn interest, the risk of default is negligible.

The IMF's original purpose was to help countries to finance balance of payments deficits so they would not take actions that would harm their trading partners. The IMF exists exactly because of what has happened in Asia. Though the United States trades more with the province of Ontario, Canada, than it does with Japan, Treasury Secretary Robert Rubin says, "The U.S. has enormously important economic and national security interests at stake in promoting restoration of financial stability in Asia. When we act to resolve the Asian crisis, we act to protect and benefit the American people. …

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