An Imperial President's Moneybags

This is the second of a four-part series on the International Monetary
Fund, World Bank and the international financial system.

Now that the Clinton administration's foreign policy of taxpayer-subsidized globalism has unleashed currency contagion worldwide, pressure on Congress to fund the $18 billion bailout of the International Monetary Fund has become intense. But before Congress votes in the funds, an examination of the IMF's new, haphazardly created mission as the "lender of last resort" to the world's deadbeats and incompetents is in order.

During the Cold War, the International Monetary Fund got itself repeatedly into all sorts of financial and ethical mishaps in the West's effort to contain the Soviet empire. But the IMF's excesses were of little concern so long as its financial firepower could be directed at whatever nation appeared on the verge of toppling into the Soviet camp.

No longer serving in an arguably wasteful manner what was nonetheless an agreed national purpose, the IMF has come to function increasingly as the personal gift of the office of the U.S. Treasury courtesy of that office's service to the U.S. presidency. The U.S.-dependent IMF has been well pleased; far easier to serve a single master than answer to a committee of congressmen.

The ascendancy of Treasury in foreign policy at the State Department's expense is pure Clinton, the result of a neo-mercantilist foreign policy in which enterprise is to be subject to direction from the presidential administration it is to serve. By expanding the mandates and accelerating the use of a host of international agencies in which the U.S. is dominant -- the IMF, the World Bank, the EBRD, the regional development banks, the IFC -- and combining their efforts with those of the Commerce Department, the Export-Import Bank, OPIC and USAID-financed Enterprise Funds, the Clintons constructed an international patronage machine in which the American executive stands supreme, the assistance-favored financial industry at their side eyeing the world's debt markets.

In service to this new homegrown, internationalized "crony capitalism," the president's men are seeking to institutionalize the socialization of private investors' and global bankers' risks in international markets via a freshly-capitalized IMF. The price of the U.S.' $3.5 billion contribution to the proposed IMF bailout fund on top of another requested $14.5 billion is said to be insignificant when weighed against the financial calamity of a worldwide recession that IMF ministrations and policing could avert. But how true is this? What might taxpayers expect for putting their money where Bill Clinton's mouth is?

Taking the IMF's behavior in Russia as a guide, the answer is that we can expect a rapid escalation of taxpayers' liabilities in the service of failed policies. After the chaos unleashed by the fund's initial advocacy of a single ruble zone for the Commonwealth of Independent States, which handed management of the ruble to 12 central banks, the fund's monetary sages settled down to their usual business of lending large sums in return for secret, IMF-designed recovery programs always said to be strictly enforced. In Russia's case, only the rhetoric of strict conditions was enforced.

For example, when the IMF touted a 1996 $10.2 billion loan on the basis of what an extraordinary job Russia had done in meeting the conditions of a 1995 $6.7 billion loan, one crucial detail went unmentioned. The $6.7 billion loan was extended without any conditions via the IMF's Systematic Transformation Facility, a program designed to funnel money to Russia in return for "the promise to reform." Also left unsaid was that through the magic of money's fungibility, the $6.7 billion loan financed -- almost to the kopeck -- Yeltsin's bloody and disastrous assault on Chechnya.

Following the Russian Communists' success in the December 1995 parliamentary elections, the Fund proceeded into even dodgier territory with the 1996 $10.2 billion loan, which came front-loaded with a billion dollars meant for Yeltsin's re-election. Certainly the Fund understood the potential embarrassment to Clinton's own re-election bid were the card-carrying Gennady Zyuganov to be elected to the Kremlin. Alas, the rather delicate operation of purchasing a foreign land's election for a flawed incumbent on behalf of another land's flawed incumbent was soon gummed up with the two incumbents' conflicting political needs.

When candidate Yeltsin wanted to please farmers by yielding to their demand for higher import tariffs with a 20 percent increase and a promise to use the new funds for social programs, the IMF barked that an increase in import tariffs would derail the loan. The cagey Yeltsin quick slapped a 20 percent hike on frozen American chicken, a $700 million dollar market, $258 million of which had been earned by Tyson Chicken. Let us recall that it was Tyson's agents who engineered Hillary Clinton's short, but steeply ascendant career trading cattle futures. And it was Tyson that had come through with a particularly well-timed loan to the 1992 campaign that proved critical in facilitating the Clintons' last minute get-away from Arkansas and federal banking investigators via the ballot box. Clinton, steeped in the political folkways of his home state, soon flew to Moscow and advised Yeltsin they ought "to help each other." After that, all talk of a chicken tariff increase ceased.

Once the first tranche's payout of a billion plus dollars arrived the following May, Yeltsin pulled out all the stops: back wages for state employees and pensions were paid, and after the IMF's billion was consumed, the capricious Siberian ordered his initially mulish Central Bank to hand over a billion more. The West's IMF watchdog kept its mouth shut.

But weren't we told that Russia's financial oligarchy paid for Yeltsin's re-election? To the contrary, Russia's bankers made serious money on Yeltsin's electoral weakness by buying government bonds at distressed prices using cheap money handed over from government deposits. The lion's share of the domestic bonds' high yields have always been paid with IMF loans. Russia's then representative to the World Bank, Leonid Grigoriev, explained, "Of course, the government was to return this money and that is why the yields on 3-month paper reached as much as 290 percent. The government's paying such huge, impossible rates on treasury bills, well, it's completely unbelievable. It had nothing to do with the market and therefore such yields can only be understood as a payback, just a different method."

Clearly, building an empire of finance capitalism is an expensive business. But who pays? U.S. taxpayers and Russian workers, who paid indirectly by having their wages go unpaid and their national estate continually degraded. Secondly, the Russian people paid by being denied a means of exchange since the banking and trade sectors of the economy were quick to socialize amongst themselves what few rubles the IMF's tight money policies allowed the Russian Central Bank to print.

Today Russia is collapsing into a fireball of default, devaluation and despair that will have unhappy political consequences. No regime in history that has reduced its own population's standard of living has survived without violence; and even that appears beyond Moscow's reach since the debilitated and hungry army, like the mass of Russians workers, hasn't seen a paycheck for what seems a month of Sundays. As Americans look on, the U.S. Treasury's receipt for the purchase of Boris Yeltsin and his government of "brave, young reformers" -- who dutifully took the IMF's money to subsidize themselves and their own greedy constituency of criminal oligarchs -- is being torn to shreds. Moscow's new kingmakers are Gennady Zyuganov, head of the Communist Party, the KGB and Russia's regional governers.

Empire too, then, is an uncertain venture. How uncertain? Much depends on the emperor. Before Congress agrees to confiscate more resources from US taxpayers for the Clinton administration's royal gift, members ought to take a careful look not only at the Yeltsin government and the Fund, but at the bloviating class's fair-haired boy. Is he more like Caesar Augustus or Gais Caligula? Or is he just naked?