In Transition, IMF Loosens the Reins
A Letter to the Editor
By Thomas C. Dawson
Director, External Relations Department
International Monetary Fund

Los Angeles Times
November 13, 2001

Reprinted with the permission from Los Angeles Times

The global situation may not be nearly as dire as Robert Reich presents (Commentary, Nov. 6). The forceful actions of the U.S. authorities to loosen the reins on monetary and fiscal policy, now mirrored by similar actions in Europe, should go a long way to prevent his worst-case scenario from materializing.

Reich is off base in accusing the International Monetary Fund of insisting on fiscal austerity as the quid pro quo for financial assistance. The Fund rarely advocates balanced budgets; instead, it works with governments to devise the fiscal policy stance appropriate to a country's circumstances. That often means that fiscal stimulus is needed to offset economic difficulties, especially spending to bolster the social safety nets. Among recent IMF programs that have included larger budget deficits: impoverished countries such as Uganda that are combining debt relief with increased social spending to reduce poverty; and Asian crisis countries like Korea, which ran large budget deficits at the height of its adjustment programs. Reich is creating a red herring in suggesting that the IMF is using stringent lending requirements to restrain its lending to Third World countries amid the current downturn. On October 5, IMF Managing Director Horst Köhler made it clear that the Fund is prepared to provide additional support to countries in need.