For decades government officials have been touting the fallacy that International Monetary Fund payments cost American taxpayers nothing. Even former U.S. Treasury Secretary Robert Rubin claimed that “the IMF has not cost the taxpayer a dime.”
This is misleading. Since the IMF operates under a veil of secrecy, these hidden taxpayer subsidies are not subject to annual appropriations, and they are nowhere to be found in the federal budget.
Out of the IMF’s 187 member countries, U.S. taxpayers have the highest burden, providing over 17%, around $55 billion, of the IMF’s total funding. Since voting weight is determined by the amount of money a country provides to the IMF, the U.S. also has the highest voting stake, at roughly 16.74% of the vote. This means that the U.S. is the only nation with the power to veto all major decisions that require an 85% supermajority to pass. We must put pressure on U.S. Treasury Secretary Tim Geithner to veto IMF bailouts for the first time in history.
The original mission of the IMF was to temporarily assist nations with short-term balance of payments problems under the Bretton Woods system. When that system of fixed exchange rates fell apart in the early 1970s, the IMF had no justification to continue. Instead of closing down, the fund simply redefined its mission.
In recent years the IMF has shown itself to be a prime example of our bailout culture. The fund has regularly put American taxpayers on the hook to bail out powerful banks and profligate nations with poor economic policies. Most recently the IMF sent $145 billion to the widely profligate Greece. The nation had long been living far beyond its means. According to the Organisation for Economic Co-operation and Development, total government expenditures in Greece were 44.8% of GDP in 2008. Greece’s failure to cut its bloated public sector and lavish welfare programs left it bankrupt. We were forced to pay for its mistakes.
This has opened the floodgates to massive European bailouts. As the Hoover Institution at Stanford University notes, “it would be difficult to devise a more regressive wealth transfer scheme than IMF financing programs. IMF loans are used to rescue wealthy, politically connected bankers, investors, and financiers at the expense of domestic taxpayers.” The IMF recently announced plans to send $130 billion to spendthrift Ireland. It is reported that Portugal and Spain may be next in line to seek funding, followed by Italy and Belgium. The IMF has institutionalized what economists call moral hazard. It has encouraged reckless behavior by holding out the prospect of a bailout to any nation or large, politically connected bank that fails.
The IMF’s counterproductive efforts have made financial crises much worse. Even former Russian Deputy Prime Minister Boris Federov has stated, “I strongly believe that IMF money injections in 1994-1998 were detrimental to the Russian economy and interests of the Russian people. Instead of speeding up reforms, they slowed them.”
Take Argentina. For many years the IMF poured into the country taxpayer-subsidized loans with an exceptionally low interest rate of 2.6%. After receiving IMF bailout packages of more than $40 billion, the Argentine economy collapsed. The Joint Economic Committee found that the IMF “led to moral hazard problems” and “sustained and subsidized a bankrupt Argentine economic policy, whose collapse is now all the more serious.”
Rather than encouraging pro-growth policies, IMF loans foster a culture of dependency among developing nations. It has created a horde of loan addicts. More than 70 countries have relied on IMF loans for more than 20 years, and most of these countries are left with massive debts that they cannot afford to pay, which only escalates poverty and instability. These IMF loans have distorted incentives to advance policies that spur economic growth. As Zambian economist Dambisa Moyo states, “foreign aid has been the biggest single inhibitor of Africa’s growth.” She further states “a constant stream of ‘free’ money is a perfect way to keep an inefficient or simply bad government in power.” Even worse, these taxpayer-subsidized loans end up in the hands of corrupt dictators.
The IMF has spent decades propping up some of the most repressive regimes in the world. So far, there has been no correlation between IMF loans and growth. Even a Clinton administration task force acknowledged that, “despite decades of foreign assistance, most of Africa and parts of Latin America, Asia and Middle East are economically worse off today than they were 20 years ago.” IMF loans are government-to-government transfers. A Joint Economic Committee study finds that “evidence suggests that the IMF knowingly makes loans to corrupt governments while recognizing that some of its loan conditions and procedures can create circumstances promoting additional corruption … thus, IMF lending operations may be consistent with subsidizing corruption.”
The U.S.’ participation in the international bureaucracy threatens our sovereignty. Our elected representatives have no say in the IMF’s bailout packages. IMF head Dominique Strauss-Kahn is a self-described socialist. In the 2007 election he sought nomination of the Socialist Party to run for president of France. He has called on European countries to yield power to the European Union, stating that “countries must be willing to cede more authority to the center.”
Moreover, the IMF has proposed the idea of a global currency. An April IMF study reads, “a more ambitious reform option would be to build on the previous ideas and develop, over time, a global currency. Called, for example, bancor in honor of Keynes, such a currency could be used as a medium of exchange.” In 1940 John Maynard Keynes first developed the idea of a supranational currency, called the bancor, to be the world’s key currency. Clearly the IMF heads favor the ideas of Keynesian economics instead of free market principles that promote wealth and prosperity.
When will we say “enough is enough?” Let’s send a message to the world that we will not tolerate the IMF’s abuses. For the sake of American taxpayers and global financial stability, the United States must put its foot down. Let’s end the madness by using our veto power to stop these irresponsible bailouts. The sooner we act, the better.
Matt Kibbe is president and CEO of FreedomWorks, a nationwide grassroots organization fighting for freedom, lower taxes and less government, and the author of Give Us Liberty: A Tea Party Manifesto.