The ABCs of the Asian Bailout

Crises: IMF is the Cause NOT the

Solution
January 29, 1998
Dear Colleague:

The Administration’s request for additional funding for the International M onetary Fund must
be opposed. The IM F, a “lender without a cause,” not only perpetuates the poverty in the
affected countries but actually contributes to the cause of the problems in the first place. The
IM F was instituted to maintain the fixed exchange rate regime of the Bretton Woods system
which no longer exists. This anachronism is counter-product ive t o the new int ernat ional
monetary system. “In fact, it is the secretive policies and lack of information disclosure [by
the IM F] that can make volatile capital flows so disruptive,” says a report by the Friends of
the Earth, a worldwide network of environmental organizations.

According to the Congressional Research Service, t here were several similarities bet ween the
underlying conditions of the various Asian economies that received an IM F bailout, “To one
degree or another, most of t hese countries have been facing difficult ies with their balance of
payments, over-expansion of production capacity, rising real est ate values , overvalued
equities, and exces sive bank lending.” ( T he 1997 As ian Financial Crisis, N ovember 25,
1997, p. 6)

Economic principles detailed within the A ust rian Bus ines s Cycle t heory explain that
government intervention in the credit supply distorts the cost of money (interest rates) which
causes a misallocation of credit. The resulting malinvestment, w hich the CRS report
describes, is a direct consequence of t he manipulat ion of the money s upply by governments ’
central banks and the IM F. Adding liquidity, the standard IM F remedy to any currency crisis,
merely fuels the inflation machine, result s in furt her malinves tment, and compounds the
problem--effectively pouring gasoline on the fire.

This Congress should not neglect its responsibilities. We need t o be construct ive to the
resolution of these crises and lay the groundwork for an improved financial system:

1) Oppose new funding for the IMF

2) S upport H.R. 3090 withdrawin g the US from the IMF
3) Demand an honest, constructive debate on the post-Bretton Woods
system.

M any knowledgeable, sincere observers and participants of the global financial syst em know
that the current regime is flawed. Should we make the debate the call for action ?

To cosponsor H.R. 3090 or for more information, pleas e call Bradley Jansen at 5-2831.

Sincerely,