Testimony

of

Edwin J. Feulner, Ph.D.
The Heritage Foundation

Before

 

The General Oversight and Investigations Subcommittee of
The Banking Committee of the House of Representatives

April 21, 1998

The Heritage Foundation is a public policy, research, and educational organization operating under Section 501(c)(3). It is privately supported, and receives no funds from any government at any level, nor does it perform any government or other contract work.

The Heritage Foundation is the most broadly supported think tank in the United States. During 1997, it had more than 210,000 individual, foundation, and corporate supporters representing every state in the U.S. Its 1997 contributions came from the following sources:

Government 0%

Individuals 47%

Foundation Grants 21%

Corporations 4%

Investment Income 24%

Publication Sales and Other 4%

No corporation provided The Heritage Foundation with more than 1% of its 1997 annual income. The top five corporate givers provided The Heritage Foundation with less than 2% of its 1997 annual income. The Heritage Foundation’s books are audited annually by the national accounting firm of Deloitte & Touche. A list of major donors is available from The Heritage Foundation upon request.

Members of The Heritage Foundation staff testify as individuals discussing their own independent research. The views expressed are their own, and do not reflect an institutional position for The Heritage Foundation or its board of trustees.

Mr. Chairman and Members of this Subcommittee, thank you for inviting me to testify on an important international issue. As the largest contributor to the International Monetary Fund, the United States accounts for about 18.25 percent of its total quota subscriptions—over $36 billion, or $517 per American family.1 The President is asking Congress to appropriate another $18 billion for the Fund—which includes a $14.5 billion hike in our quota subscription, and an additional $3.4 billion to fund a new credit line called the "New Arrangements to Borrow." President Clinton would like Congress to appropriate it immediately, in one lump sum, and with no real conditions attached.

It should be noted that this request is about much more than how much additional money the President seeks for the IMF. It concerns a vast expansion in the IMF’s abilities and capabilities. This $18 billion appropriation—about half of the total amount of money we have given to the Fund over the past 50 years—is only our share of the IMF’s worldwide solicitation, which should generate for the Fund over $85 billion in new resources. And this is only the beginning. Michel Camdessus, the French Socialist who now directs the Fund, stated it is his intention to assemble $160 billion in the Fund, which means he will likely come back to Washington asking for more money in only a few years.2

This hearing was called to address the extent of America’s influence in the IMF, and whether that influence is great enough to impose reforms on that organization. However, before such issues can be properly assessed, a critical evaluation of the IMF’s current lending practices, its track record in achieving economic recovery, and an explanation of the reforms we recommend must be made. Therefore, I offer to this committee a few facts and a brief overview of the problems inherent in the International Monetary Fund before I will address the best solutions to these problems.

This Request is Not Really About Helping Asia. Thus far, the Asian crises and IMF replenishment have been inextricably intertwined. These two issues should be de-linked. The IMF had officially requested member country participation in the New Arrangements to Borrow back in 1996; and replenishment issues were being discussed well before any hint of an Asian crisis. Therefore, claims that the Asian crisis spurred the funding requests are false. Moreover, the IMF already has the resources it needs to meet its obligations in Asia. The fact is that the IMF and the Administration are not asking for money for Asia, but for future bailouts.

The issue before Congress, therefore, is not whether America should help bail out Indonesia, South Korea, Thailand, or Country X. Instead, the issue is whether Congress should approve of the Fund’s wishes to play the role of international rescuer of failed economies and insurer of poor international investments in the future. As most of you are well aware, analysts at The Heritage Foundation are on record as opposing any new funding for the International Monetary Fund. In fact, Heritage analysts have recommended repeatedly that the United States investigate the feasibility of withdrawing from this ineffective organization and applying for the full reimbursement of our existing contribution.3

The IMF Is Not Facing a Liquidity Crisis. Administration officials and IMF representatives have implied that the IMF needs the requested $18 billion because the Asian bailout drained IMF resources and the organization is now critically short of liquidity.4 This is not the case. As stated above, the $18 billion request was decided well in advance of the Asian crisis. Moreover, information published by the IMF itself reveals that the Fund is not facing a liquidity crisis. In fact, current and near-term liquidity of the IMF would allow it to conduct two bailouts equivalent in size to the one it provided for the recent Asian financial crisis.

Specifically, as the IMF’s own information shows:

 

 

 

 

 

 

 

Past Replenishments Were Debated at Length. The boldness of the President’s demand that Congress provide $18 billion in additional funds to the IMF is outstripped in its audacity by the additional demand that Congress do so with little or no informed, public debate. As Majority Leader Dick Armey aptly stated, "In any other context, a suggestion that we provide $18 billion in taxpayer money to anyone, without an informed public debate, conditions on its use, or even the possibility of effective congressional oversight in the future, would be rejected out of hand."9

To put the issue in perspective, when Congress debated the last IMF quota increase of 50 percent in 1992 (the U.S. portion was $12.2 billion at that time), it debated the issue for 20 months, even though the amount then requested was only two-thirds of the current request. Congress debated the 1983 quota increase of 47.5 percent (the U.S. portion was $5.8 billion for a quota increase and $2.6 billion for the General Arrangements to Borrow) for eight months, even though the IMF liquidity ratio (the relationship between IMF liquid assets to loan commitments) in 1983 was only 35 percent, or 10 percent below the current IMF liquidity ratio of 45 percent.10 In both the 1992 and 1983 replenishments, the Fund’s liquidity ratio was similar to its present level, but Congress carefully took the time to consider the requests for additional funding.

Critics of the IMF are not isolationists. Although critics of the IMF have been portrayed as isolationists or neo-isolationists who would lead the world into another Great Depression, quite the opposite is the case. Former Secretary of State George P. Shultz, former Treasury Secretary William E. Simon, and Walter B. Wriston, former chairman of Citicorp/Citibank, recently called for the abolition of the IMF in a Wall Street Journal article. Nobel Laureate Milton Friedman and former Vice Presidential candidate Jack Kemp have also urged Congress not to provide additional money to the IMF. None of these men can be described as isolationists. On the contrary, each is a longtime advocate of responsible U.S. global leadership. These experts understand that the IMF has done more harm than good through its actions, and that people would suffer less in the long term—and most likely in the short term as well—in a world without the market distortions that are created by the IMF. Like these men, critics of the IMF in general support sound economic principles and responsible international engagement.

PROBLEMS WITH THE IMF

There are myriad problems—both institutionally and theoretically—with the IMF.

1. IMF bailouts are more likely to cause financial crises than prevent or cure them. Congress should attend to the powerful yet indirect influence the IMF exerts in promoting financial and economic crises. The IMF’s record of "rescuing" troubled economies invites governments to follow imprudent economic and monetary policies, since the political and economic costs of failure are reduced by the promise of a bailout.

Why? Just the possibility of an IMF rescue creates what economists refer to as a "moral hazard." Bailouts shield investors and politicians from the consequences of their poor decisions by "socializing" risks and reducing the cost of failure associated with an investment. Risks are socialized because everyone ends up paying for individual investors’ errors. The costs of failure are reduced because, directly or indirectly, the IMF compensates investors when their investment plans fail. In other words, IMF bailouts encourage speculation of the sort that investors probably would avoid if the IMF were not there to shield them from failure. Bailouts send signals to governments that they will not have to bear the costs of failing to reform their economies: The IMF will be there to pay the price of their inaction. Thus, the IMF’s actions will neither prevent nor cure financial crises—they will encourage them.

Indeed, evidence seems to indicate that IMF advice precipitated the recent Asian crisis that Treasury and IMF officials are using to strong arm Congress into appropriating this additional $18 billion. According to the Wall Street Journal, "The IMF tripped this crisis by urging the Thais to devalue [the baht], then promoted contagion by urging everyone else to do likewise…putting more money into today’s IMF is not likely to solve any crisis. It is more likely to cause new ones."11 Clearly, providing more gasoline – in the form of additional resources – for the IMF to start financial fires around the globe is not the way to promote economic stability.

Financial hardship and defaults occur every day in the U.S. economy. They are a necessary and natural reflection of free markets. Bankruptcy is the market’s method of reallocating capital to more productive uses, or away from managers who failed to create wealth for investors or improve the well-being of consumers. As assets are purchased at a reduced rate by the highest bidder, both parties to an ill-considered lending or investment decision suffer a loss; but the overall economy profits because new, presumably better managers will now control the capital. In the international market, however, the IMF distorts this mechanism by rewarding inept managers with financial assistance.

Without the IMF, borrowers and creditors would be forced to resolve the situation in the Asian countries by renegotiating loans or seizing assets. A world without the IMF would have to observe the greater discipline of market forces. Banks and investors would be more cautious in assessing risk before investing or committing loans. Countries wishing to receive foreign loans and investment would have to adopt transparent economic policies that lower risk for lenders and investors. Specifically, they would have to create fair and reliable bankruptcy laws, employ transparent and internationally accepted accounting procedures, allow minimal government interference in the allocation of credit, exercise prudent oversight of their banking systems, and encourage rather than prevent domestic and foreign banking competition.

2. The IMF lacks transparency. I congratulate the members of the committee for requiring Truth in Testimony, a policy The Heritage Foundation has long supported. The "truth in testimony" provision of the House Rules was designed to ensure that Congress has access to all information on those who testify before its committees. This allows you to determine whether the information they present has been biased or unduly influenced by the witness’ supporters. Firmly embedding this transparency in the legislative process is vital.

Prompt, unbiased (or, at least, admittedly biased) information is just as important for international organizations such as the International Monetary Fund to perform their assigned duties. Indeed, Article VIII of the IMF Articles of Agreement, the "General Obligations of Members," specifically states that each member is required to provide information "as [the IMF] deems necessary for its activities, including, as the minimum necessary for the effective discharge of the Fund's duties."12

Yet, even though the IMF recognizes the necessity of timely, unbiased information to its successful operation, it fails to acknowledge the necessity of giving such information on its own organization and operation to its member governments and their citizens.

This immunity makes it imperative that the IMF is forthright in providing information necessary to its member governments and the public at large to make informed decisions about the performance, record, and necessity of the Fund.13

However, far from encouraging public inspection, the IMF refuses to release the vast majority of its information on economic policies, past performance, and internal meetings to the press or the interested public. In fact, the culture of secrecy is so inculcated in the IMF that it actively discourages and often prohibits public access to even public records. Anyone not employed by the IMF must apply for an appointment to gain access to its library, which is open only on Tuesdays and Thursdays. If the IMF deigns to approve the application, which is by no means certain, the application process can take up to six weeks. Students are not allowed in the library at all.

Although this lack of public transparency is very disturbing, the Fund’s refusal to grant Congressional offices free access to its records is totally unacceptable. As described by Representative Jim Saxton of New Jersey, Chairman of the Joint Economic Committee, such provisions allow the IMF to withhold any information it wishes from its member governments—and the U.S. Congress, which may wish to conduct an informed debate on the organization—while simultaneously demanding that those governments contribute billions of dollars to its coffers.

The U.S. Department of the Treasury, which oversees membership in the IMF through the U.S. Executive Director to the IMF, is seemingly a willing co-conspirator in this cult of secrecy, and exacerbates this lack of transparency. Indeed, the Treasury Department offered Chairman Saxton a copy of IMF documents only on the condition that he keep the documents and their contents confidential and hidden from public scrutiny.14 This incident, following the IMF’s historical pattern, led the Joint Economic Committee to conclude that:

Both IMF and U.S. Treasury bailout policies remain overly secretive, ambiguous, and ill-defined. Because these policies are seldom explained to the public, unnecessary misunderstanding, resentment, and opposition often result. A good deal more transparency is called for from both of these taxpayer-financed institutions. Explicit specification of the IMF's objectives, for example, should be accompanied by clarification of the procedures and practices by which it accomplishes these objectives. At a minimum, full explanations of the conditions, lending terms, subsidies involved, and the rationale as to why such lending is necessary are essential. Additionally, those entities actually receiving taxpayer subsidies should be identified.15

This sentiment is echoed by Jack Kemp, who stated in a recent letter to Representative Richard K. Armey, "I urge you to put off a vote in the House on any additional funding for the IMF at least until that organization complies with all outstanding congressional information requests."16

3. IMF loans provide massive subsidies to borrowing countries. The IMF has a number of different facilities for extending financial assistance to its member countries. They range from the extremely short-term Stand-by Arrangements, which are typically extended over 12 to 18 months and repaid within five years, to long-term assistance, such as the Enhanced Structural Adjustment Facility (ESAF), which is repaid over 10 years, including a five-year grace period. All IMF assistance is extended at conditional, or below market, rates. These rates range from slightly below market rates, such as the 4.5 percent charged on Stand-by Arrangements, to nearly free as with the ESAF loans which charge annual interest of only one half of 1 percent (0.5 percent).17 Even the most creditworthy nations cannot receive such interest rates on the private financial markets. For example, the United States must pay around 5.5 percent on government bonds of similar maturity.

The highly subsidized interest rates on IMF bailouts and structural adjustment loans are equivalent to a massive transfer of wealth from American taxpayers and other countries. For example, the IMF extended most of its loans to Indonesia, South Korea, and Thailand at subsidized rates (between 4.5 and 4.7 percent). These same countries were required to pay approximately 14.5 percent on comparable government bonds to access credit in the private sector. David Sachs of the Independent Institute and Peter Thiel of Thiel Capital International LLC estimate that because of IMF subsidies, "Over three years, South Korea, Thailand, and Indonesia will have received a direct wealth transfer of at least $35 billion, mostly from U.S. and Western European taxpayers."18

Interest rates are usually determined by the borrower’s risk and credit worthiness. However, the IMF ignores these factors. In fact, it actually rewards high-risk countries with poor credit records. In other words, the IMF reverses the normal banking practice of good lending: It rewards failure and punishes success. It rewards poor governance and excessive risk taking by investors.

Requiring the IMF to charge market-determined interest rates on it loans would ensure that IMF loan recipients are held to the same standards for its loans as are private individuals and companies. There would be no special deals for bailing out rich investors who, unlike the average person with a bank loan, are saved from failure by government-subsidized loans. Moreover, this provision would minimize market distortions. It would reinforce market perceptions of risk, and eliminate the backdoor transfer of wealth from Americans to the governments of countries that made unwise economic decisions.

4. IMF policies lead developing countries to economic stagnation and recession and foster dependency on foreign aid. Data collected over the past three decades demonstrate conclusively that most less developed countries receiving IMF loans have the same or lower per capita wealth today than they had before they received the loans. Many actually are worse off. For example:

Even a reformed, transparent IMF that recommends economic policies encouraging long-term growth would not be worthy of more funding. The Fund is ineffective in forcing countries to adopt reform and therefore cannot prevent future financial crises. Furthermore, the IMF repeatedly enters agreements with countries that have a history of violating their previous contracts with the Fund. For example:

5. Examination of IMF activities reveals that the organization is not functioning as a lender of last resort, as IMF and Treasury officials claim. Instead, it acts as a lender of first resort. The IMF had financial arrangements worth over $38 billion with 58 countries as of January 31, 1998.19 In other words, the IMF is currently giving financial assistance to a third of its entire membership—indeed, over a quarter of the world’s nations. Are we seriously to believe that every one of these 58 countries is in such dire financial straits that it is unable to secure private loans or investment, obtain foreign exchange through exports, or cut government expenditures sufficient to meet its debt obligations? Or that they are incapable of negotiating debt terms with their creditors? Of course not. The very fact that they are in debt indicates that they were able to secure credit. Moreover, if a quarter of the world’s countries were indeed in such financial straits, global financial problems would be far beyond the capacity of the IMF to solve.

6. The IMF claims that it must act to help the people of a troubled country. This is false. Providing money to a government merely allows that government to meet its own debt obligations to both public sector and private creditors. On one hand, an IMF bailout allows a government to pay its debts to large international banks; on the other, it allows a country to meet its short-term obligations to public sector creditors, such as the IMF and the World Bank. In effect, therefore, instead of helping people in the country improve their economic condition, part of the IMF assistance is helping the country to pay off its debt to the IMF itself.

IMF rescues help neither the economies of recipient countries nor the majority of their citizens. In the wake of the Mexican bailout in 1995, for example, the Mexican people suffered a sharp decline in their standard of living, large increases in unemployment, and an overnight erosion of savings. Investors, however, escaped with minimal losses. This scenario has been replayed time and time again. Indonesia, South Korea, and Thailand all have experienced similar hardships despite the IMF-led rescue package. As in Mexico, the current IMF financial package in Asia salvages the profit margins of international lenders and large borrowers by guaranteeing their loans. Meanwhile, the citizens of these countries pay the tab on the rescue package through IMF-mandated higher taxes or currency devaluation (which reduce purchasing power and savings) in the hope that increased exports will provide the foreign exchange to pay an increased foreign debt.

7. IMF policies promote political instability. When confronted with the problems associated with IMF bailouts, defenders of the organization claim that all of the immense problems– including financial instability on a global scale, lack of transparency, massive transfers of wealth from U.S. taxpayers to third world elite and international investors, and retarded economic development – are tolerable if IMF assistance can quell social or political instability.

Thus, it is no surprise that arguments in support of the International Monetary Fund usually are couched in the language of international crisis. Advocates of the IMF insist that without IMF guidance and assistance, countries would flounder inextricably in the "tar pits" of financial and political chaos. Nowhere, in fact, do we see a more consistent and zealous application of the view that developing countries are bound to fail, flounder, and decay without third-party assistance than at the IMF and at the other international agencies that complement its efforts.

Those who champion this argument:

SOLVING PROBLEMS:
U.S. INFLUENCE IN THE INTERNATIONAL MONETARY FUND

The only authority over the IMF is its governing bodies, established in its Articles of Agreement. In fact, the Articles of Agreement specifically state that the assets, archives, and employees are immune from searches and requirements demanded by judicial or legislative bodies of its member states. The Executive Board, which has 24 representatives oversees the daily affairs of the IMF and the extension of financial assistance. The five largest contributors to the IMF (France, Germany, Japan, the United Kingdom, and the United States) appoint one representative each to the Executive Board. The remaining 19 directors are elected by different coalitions of countries and cast the cumulative votes of the coalition.

The Administration has steadfastly opposed any restrictions placed on U.S. funding or participation in the IMF. Instead, the Administration has reluctantly supported legislation contained in the Senate supplemental appropriations bill. Replacing earlier demands that the IMF implement reforms in exchange for access to U.S. funds, the Senate language only requires the Secretary of the Treasury to certify that the world’s seven largest economies—the so-called Group of 7 (G-7) nations—agree to use their influence to push two specific reforms in IMF policies.20 These reforms would require countries to eliminate government subsidies and adhere to conditions outlined in trade agreements to which the country is party. These measures would largely reiterate previous legislation, would not address key issues (such as the disruptive impact IMF subsidized loans), and would be unenforceable.

Congress should not fall victim to this facade of reform. The Senate language would merely repeat past failures. Congress has attempted to implement desired reforms in the IMF through the "voice and vote" of the U.S. Executive Director for two decades with little or no change in IMF policy. These requirements have been largely ineffective. Consider the following events:

The problem is not a lack of legislated directives. Indeed, the two reforms outlined in the current Senate legislation would largely duplicate past legislation. As noted by Senator Mitch McConnell (R-KY), "section 14 of the [Bretton Woods Agreement] Act says it is U.S. policy to promote the removal of trade restrictions. Section 44 and 49 tell our directors to work to eliminate agricultural subsidies."29 So, since the very beginning of the International Financial Institutions, the U.S. has advocated a set of policy directives which have been largely ignored by the IMF. That is, the problem lies in the failure of the reforms to be implemented.

HOW TO ENFORCE CONGRESSIONAL DEMANDS

Previous experience shows that attempts by Congress to reform the IMF or alter its policy through legislative directives to the U.S. Executive Director of the IMF are ineffective because:

(1) Only in limited circumstances can the U.S. use its voting power to block IMF actions. Any one member state of the IMF is relegated to an obstructing rather than a constructive role due to the IMF’s voting structure. Even the United States, which controls the largest block of votes in the IMF (17.78 percent), can only block those actions in the IMF that require an 85 percent majority, such as expansion of the quota subscriptions and amendments to the IMF Articles of Agreement.30

The U.S. is essentially unable to push through fundamental reforms unless it has the additional support of 52 percent to 63 percent of the votes. The U.S. cannot prevent the organization from extending financial assistance, which under normal circumstances requires a 50 percent majority of votes cast, unless it has garnered support of an additional 33 percent of the votes.31 This means that that IMF can extend loans over the objection and negative vote of the United States.

(2) Congressional instructions to executive branch officials are ineffective. The U.S. Executive Director is technically not bound by Congress’s instructions on how to vote or speak in its official capacity. Congressional instructions are more along the line of suggestions or guidelines, rather than ironclad rules. Through constitutional division of powers, the President can countermand congressional instructions to executive branch employees. Congressional directives are enforceable only within its sphere of constitutional powers, such as the power of the purse.

For example, Congress is within its power to restrict access to authorized or appropriated funds on condition of certain actions. Hence, the provisions in H.R. 3331. However, past legislative efforts to reform the IMF through instructions to the U.S. Executive Director have been undermined by this lack of congressional authority. Moreover, congressional instructions are often weakened further through waivers, such as a national security waiver, that allow the President to circumvent congressional guidelines.

(3) Existing legislation contains no absolute requirements to encourage the IMF to adopt reform. Over 30 different requirements on IMF activities, IMF reforms, and instructions to the U.S. Executive Director of the IMF on how to use his "voice and vote" have been passed by Congress and signed by the President in the past two decades.32 The problem is not a paucity of instruction; it is a lack of enforcement. Past legislation to reform the IMF or its activities has lacked any meaningful enforcement measures or consequences if the legislation is ignored. As noted by Senator McConnell, "We do not need to pass more legislation urging the administration to use our voice and vote to assure a loan meets a congressional mandate. Instead, we need to see the IMF Executive Board or the Board of Governors pass and implement resolutions agreeing to standards already enunciated in the U.S. law."33 If Congress is serious about reforming the IMF it must attach palpable and effective enforcement mechanisms to its requirements.

Congress must rely on its constitutional powers, specifically the power of the purse, if it wishes to enforce certain actions. Specifically, Congress must demand that desired reforms are implemented before funds are distributed, and require annual confirmation of required reforms to maintain access to previously appropriated funding. One bill that would implement these safeguards is H.R. 3331, The IMF Transparency and Efficiency Act of 1998.

H.R. 3331 orders the Secretary of the Treasury to submit a written certification to the Senate Committee on Banking, Housing, and Urban Affairs and to this committee, the House Committee on Banking and Financial Services, on the status of the reforms specified in the legislation six months after the enactment of the bill. Once the Secretary of the Treasury submits the certification, Congress must enact a joint resolution verifying and approving it before the funds are made available.

This provision would ensure that Congress has an opportunity to examine and review IMF actions and confirm that the reforms stipulated in the bill have been implemented. Moreover, the certification must be renewed annually. This would prevent possible backsliding and recidivism on the part of the IMF, or deceptive action on the part of Treasury officials.

If the Secretary of the Treasury fails to submit the certification, or if Congress finds fault and fails to pass a joint resolution supporting the certification, H.R. 3331 forbids any "officer, employee, or agent of the United States [to] directly or indirectly, provide Federal funds to the International Monetary Fund." This provision is far more effective than prohibiting the current appropriation because it would freeze all U.S. funds committed to the IMF—past, current, and future—that are not already in the IMF coffers.

CONCLUSION

Many policy analysts, private investors, economists, and Members of Congress have recognized that IMF bailouts have had enormous counterproductive effects on financial markets and economic development. For nearly two decades, Congress attempted to mitigate these effects by instructing the U.S. Executive Director of the IMF to use his "voice and vote" to reform the organization or to prevent specified activities. In nearly every instance, these instructions have been ignored or, when followed, have been ineffective in implementing reform or opposing undesirable actions.

If Congress truly wishes to address the many institutional and theoretical problems of the IMF, it must use its constitutionally mandated power of the purse to withhold all U.S. funds—past, present, and future—from the IMF unless its conditions of reform are met. Anything short of this firm stance will merely be a repetition of past ineffective attempts.

_________________________
1A quota subscription is the amount of money a country has committed to the primary account, or General Resources Account, of the IMF. Voting stock is directly linked to a country’s quota subscription as it relates to total quota subscriptions. For example, since the United States is the largest contributor to the IMF (committing over $36 billion or 18.25 percent of the Fund’s quota subscriptions), it controls the most voting power, with 17.78 percent of the vote.

2House Majority Leader Richard K. Armey, "The IMF and the Clinton Doctrine," April 3, 1998, at: http://freedom.house.gov/library/imf/doctrine.asp.

3Article XXVI of the IMF Articles of Agreement state that a member of the IMF can initiate withdrawal procedures through a written notice of intent.. Repayment schedule can be negotiated between the IMF and the former member. Otherwise, a repayment schedule is outlined in the IMF Articles of Agreement.

4The primary account of the IMF, called the General Resources Account, is funded by the "quota subscriptions" (or assessed dues) of its members. The Account contained $198 billion as of April 30, 1997. A 45 percent increase in the quota assessed has been approved by the IMF and would increase total resources to $287 billion. International Monetary Fund, Annual Report 1997, Washington, D.C. and the Budget of the United States Government, Fiscal Year 1999, Appendix, pp. 969-970.

5"IMF Position Improves," IMF Survey Supplement on the Fund: Liquidity, September 1997; available on the Internet at http://www.IMF.org/external/pubs/ft/survey/sup0997/11liquid.htm. IMF claims of illiquidity would indicate the extension of some $86 billion since April 1997.

6This figure was reached by calculating the annual change in outstanding Fund credit from 1990 to 1997, and taking the average of the annual figures. Estimate based on information provided in Table II.9, International Monetary Fund, Annual Report 1997, p. 172.

7Ibid., Financial Statements, p. 245.

8This amount does not include the $25.26 billion in emergency credit available to the IMF through the General Arrangements to Borrow. Including this amount would raise total liquidity to $100.02 billion. In addition, the entire $36.04 billion included in the Asian package will not be dispersed all at one time, so it is a bit misleading to include it as an absolute liquidity loss in this list—some of the money will remain in IMF coffers. In addition, the bailout was extended as a three-year arrangement, and should be repaid within three to ten years, depending upon on the facility used to extend assistance to these countries from the IMF and scheduled disbursement of the funds.

9Armey, "The IMF and the Clinton Doctrine."

10Information on 1983 liquidity ratio data from comments made by Senator Mitch McConnell, Hearing of the Foreign Operation Subcommittee of the Senate Appropriations Committee on the IMF Supplemental Request, March 3, 1998. Current IMF liquidity ratio data from "IMF Quotas and Quota Reviews," The International Monetary Fund, April 1998, at http://www.imf.org/external/np/exr/facts/quotas.htm.

11"The IMF Crisis," The Wall Street Journal, April 15, 1998, p. A22.

12See: http://www.imf.org/external/pubs/ft/aa/aa08.htm#5.

13Its Articles of Agreement place the IMF and its employees beyond the authority of national governments. Article IX, "Status, Immunities, and Privileges" states in Section 3 that the "Fund, its property and its assets, wherever located and by whomsoever held, shall enjoy immunity from every form of judicial process." Sections 4 and 5 establish the immunity and inviolability of its property, assets, and archives from "search, requisition, confiscation, expropriation, or any other form of seizure by executive or legislative action." Section 6 states that countries are forbidden from placing "restrictions, regulations, controls, and moratoria of any nature" on the property and assets of the Fund. Fund employees are similarly immune from legal procedures on actions directly relating to IMF business.

14Representative Jim Saxton, "Treasury Offers IMF Documents to JEC on Condition of Secrecy—Committee Insists on Transparency," Joint Economic Committee Press Release, February 13, 1998, at: http://www.house.gov/jec/press/1998/02-13-8.htm

15Representative Jim Saxton, "IMF Financing: A Review of the Issues," Joint Economic Committee, 105th Cong., 1st Sess., March 1998, at: http://www.house.gov/jec/imf/imf.htm.

16Letter from Jack Kemp to Majority Leader Richard K. Armey (R-TX), April 10, 1998.

17International Monetary Fund, "The IMF at a Glance," April 1998, at: http://www.imf.org/external/np/exr/facts/glance.htm.

18David Sachs and Peter Thiel, "The IMF’s Big Wealth Transfer," The Wall Street Journal, March 13, 1998, p. A16.

19IMF, "The IMF at a Glance."

20These reforms would obligate recipients of IMF assistance to: (1) end government subsidies and directed lending, and (2) comply with international trade agreements. The G-7 includes Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. It meets periodically to coordinate economic policies, discuss treaties or agreements, and issue policy statements. The G-7 are the seven largest contributors to the IMF and control 44.82 percent of its votes, according to the 1997 IMF Annual Report.

2122 U.S.C. Sc. 286e-11.

22Of the seven countries designated by the U.S. State Department as state sponsors of terrorism (Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria), all but Cuba and North Korea are members of the IMF. Indeed, only Sudan is under any kind of voting sanctions or restriction on borrowing and those restrictions are active because the country is delinquent in repaying IMF loans. While Iraq is also delinquent, it retains full voting and borrowing privileges along with fellow stalwarts of the international community Iran, Libya, and Syria.

23International Monetary Fund Annual Report 1997, p. 133-34.

2422 U.S.C. Sec. 286aa.

2522 U.S.C. Sec. 262d.

26Mauritania is a member of the IMF in good standing and is currently benefiting from a $60 million IMF loan, despite human rights record characterized as "poor" by the 1997 State Department Country Reports on Human Rights. Abuses included murders committed by government troops, fraudulent elections and widespread slavery. Moreover, the IMF loan is extended through the Enhanced Structural Adjustment Facility, which typically charges only 0.5 percent interest on its loans. American taxpayers contributed and subsidized nearly $250 million in seven IMF financial arrangements extended to Mauritania in the past 15 years. Sudan is also a member of the IMF though it has had its voting rights suspended for failing to repay past loans. The 1997 State Department Country Reports on Human Rights human rights record characterized Sudan’s record on human rights as "extremely poor." Sudan earned this rating through government sponsored murder, torture, kidnapping, forced labor, slavery, and forced conscription of children. U.S. taxpayers contributed to two loans from the IMF to Sudan during the 1980s worth over $350 million, which it has yet to repay. When or if Sudan repays these delinquent loans, presumably it, too, will be eligible for IMF assistance. International Monetary Fund Annual Reports, 1983 to 1997.

2722 U.S.C. Sec. 262o-1.

28J. Michael Waller, "IMF and the Russian Missiles," Washington Times, January 23, 1998, p. A21.

29McConnell, Hearing of the Foreign Operation Subcommittee of the Senate Appropriations Committee."

30The International Monetary Fund, Articles of Agreement, Article III, Section 2(c).

31IMF, Articles of Agreement, Article XII, Section 5(c), "Except as otherwise specifically provided, all decisions of the Fund shall be made by a majority of the votes cast."

32"The IMF and ‘Voice and Vote’ Amendments: A Compilation," Congressional Research Service, Economics Division, upon request of Representative Bernard Sanders, April 15, 1998.

33McConnell, Hearing of the Foreign Operation Subcommittee of the Senate Appropriations Committee.