In coming weeks, Congress will be debating the role and policies of the International Monetary Fund and how or whether the United States should support this international institution and its efforts to bring stability to Asian and global financial markets.
Today, the House Banking Committee will vote on the administration's request for $3.5 billion for the new arrangements to borrow and $14.5 billion for an IMF quota increase, or capital replenishment.
Congress should support the United States' share, which amounts to 17.5% of the total needed. As the world's economic superpower, we would default on our world leadership if we did not pay our share in the midst of a serious, international crisis.
If the U.S. government and the IMF do not act, U.S. taxpayers, businesses, and labor could face serious consequences: Asian currencies could decline still further; the United States could be saddled with a greater tide of imports and larger trade deficits; and stock market prices could fall, affecting pensions, savings, and other consumer behavior. Asian countries could face further economic, social, and political turmoil.
This crisis actually presents the administration, Congress, and the IMF with a significant opportunity: to help reform the IMF and the political and economic practices of other countries that have been injurious to the American worker.
We can take advantage of this opportunity by extracting certain conditions from the IMF and the affected countries. These conditions should include the following:
Stabilize currencies. The IMF must help bring order to chaotic foreign exchange markets. There have been unjustified declines in the value of national currencies, either because of overreaction to economic conditions or because of deliberate competitive devaluation. The Asian economies are fundamentally sound and with corrective policies they should rebound.
Guarantee improvements in the financial services sector. The IMF should obtain agreement from the affected countries to reform the laws and regulations governing their domestic financial institutions so that they meet generally accepted international standards.
Establish bankruptcy laws. Most countries do not have bankruptcy laws that facilitate an arrangement among creditors. Hence, there is a rush to withdraw money at the first hint of trouble. This precipitates a crisis and must be prevented in the future.
Eliminate barriers to competition. The IMF must insist on economic reforms that open economies to both internal and external competition. Small domestic businesses and international companies must not be excluded from open market competition because of collusion among conglomerates, governments, and financing institutions. Crony capitalism must be ended.
Refrain from draconian prescriptions. The IMF must be careful not to impose unwarranted tax increases or budget cuts. Although some officials characterize the requirement of a budget surplus 1.5% of gross domestic product as "modest," the adverse impact on average citizens could be enormous. Moreover, in the Asian context, most of the imprudent financial practices have been in the private sector, not the public sector.
Expect creditors to bear an appropriate financial burden. It is not fair to use IMF resources to guarantee banks and investors full return on their investments and loans. Financial mechanisms can be utilized to ensure that creditors take appropriate losses, both to help avoid future imprudent lending and to help garner adequate political support for U.S. participation in the IMF.
I believe that both business and labor should be strongly supportive of U.S. participation in the effort to stabilize the Asian economies.
U.S. businesses and the economic climate in which they operate have already been impacted by the deteriorating economies of Asia. Many U.S. companies are reducing their earnings projections because of anticipated fallout from the Asia situation. Economic instability and the depreciating currencies that accompany it will ultimately adversely impact U.S. exports, increase the trade deficit, and put a brake on economic growth.
U.S. labor should also be very concerned that currency depreciation will cause export "dumping" in the United States. The U.S. trade deficit could soar to $300 billion this year as a result of the currency crisis. As we have seen with the weakening Japanese yen, the U.S. auto industry has suffered: Ford's sales to Japan have dropped 40%. Boeing had four aircraft orders canceled, and Stone & Webster Engineering had its contract for a refinery project in Indonesia canceled.
Labor is also very concerned about workers' rights and standards abroad. I share those concerns fully; indeed, we must either help the people of the world bring their standards up, or their lower standards will eventually bring ours down. For that very reason, a parallel commitment to an improvement of international labor standards is essential if we are to achieve domestic political support for either the IMF or future trade agreements.
It is not just U.S. leadership that is at stake. If the United States does not respond proactively and responsibly to this crisis, the economic well-being of U.S., Asian, and other countries' citizens will be put in serious jeopardy as the global economic climate deteriorates.
Politically, philosophically, and practically, Americans have a great deal to lose if we permit regional economic problems to reverberate around the globe unaddressed. It is incumbent upon this country's political, business, and labor leadership to do everything possible to ensure the situation does not deteriorate to that point.