Tax Cuts Take a Back Seat — To the IMF

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by Patrick J. Buchanan – October 6, 1998

Can it be that a Republican Congress will wind up killing a near $18 billion tax cut this year for American families, only to hand $18 billion over to the IMF to make the world safe for hedge funds?

So it would seem. The GOP’s modest tax cut of $80 billion over five years is hanging by a thread in the Senate. But a House-Senate conference is colluding to tack $18 billion in fresh IMF money onto a foreign aid bill and then whip it through the House.

This will be among the last votes taken in our 105th Congress, and it will reveal the true character of the institution. That the IMF is to the world of global finance what Inspector Clouseau is to police work is now conceded. Even the IMF’s defenders are reduced to wailing, “But what alternative do we have?” For conservatives, the answer should be simple: Let free markets pick winners and losers in the Global Economy.

Take Brazil, the likely beneficiary of a $30 billion IMF bailout by week’s end. What are the markets saying? Since August, Brazil’s reserves have fallen by almost $30 billion as investors have fled, despite interest rates on national bonds up to 50 percent. Why they are fleeing should be obvious, even to a hedge-fund manager.

Brazil will not accept the discipline fixed currencies demand. President Fernando Cardoso is running a budget deficit of 7.5 percent, the equivalent of a U.S. deficit of $640 billion. He has $70 billion in debts coming due by Halloween and $44 billion in the bank. Brazil is bust, its currency overvalued. But if investors are fleeing Brazil’s paper that offers 50 percent interest, why would the IMF dump $30 billion into Brazil, asking only 5 percent? Answer: The IMF is not bailing out the people of Brazil. They will get new taxes. The IMF is bailing out the politicians of Brazil and the Western banks.

What should be done about Brazil? How about nothing? Only if Brazil’s wastrel politicians and the Western bankers are forced to come face to face with their irresponsibility and greed will these crises ever end. No one bailed out Orange County when it went into de facto default, and that was in t he good old U.S.A.

To see how absurd the situation has become, take Russia. The new regime is warning the IMF that if it does not come across with yet another $4.3 billion installment of a $20 billion loan, Russia may default and bring down the whole house of cards.

“Blackmail!” screams the IMF. Actually, it is extortion, and the Russians are practicing it because they know the IMF is nothing but a front for the investor friends of Treasury Secretary Robert Rubin. If you don’t give us the cash, they are saying, we won’t pay them back.

Why does the IMF not tell the Russians where to get off? Because the dirty little secret is that the IMF exists to protect investors. In a closed speech Sunday, Rubin reportedly told the IMF it was OK to go back and lend again to nations that had already defaulted on private debts. This scam has gone beyond incompetence to criminality. Last month, the Los Angeles Times had a front-page story: “Russia Lied to Obtain Loans, a Chief Aide to Yeltsin Says.” In it, “reformer” Anatoly Chubais admitted he had “conned” the IMF about Russia’s condition to get the $20 billion loan and the $4.8 billion July payment.

Had we told the truth, said Chubais global lenders “would have stopped dealing with us forever. … In such situations, the authorities have to do it. We ought to. The financial institutions understand, despite the fact that we conned them out of $20 billion, that we had no other way out.”

The Russian word that was translated into “we conned” can also be translated as “we tricked” or “we cheated.”

Chubais is admitting that Moscow lied to the IMF and that the IMF must have known it was being had. Unsurprisingly, over the weekend, Russia and Indonesia, two of the IMF’s biggest clients, were ranked among the 10 “most corrupt” governments on Earth.

The issue, however, is no longer the IMF. Its incompetence is now a matter of record. The real questions are these:

Will Congress, which has the power of the purse, dump $18 billion more into the coffers of this failed agency, in which case Congress is itself unfit to be the custodian of the people’s money?

Will the GOP House leadership approve the $18 billion IMF bailout, in which case it should stop proclaiming itself the party of free markets?

When you get right down to it, all this IMF debate is about who is going to bail out the rich guys who lost their shirts in the poker game of the Global Economy. They didn’t share their winnings with us, so why should we share their losses with them?

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