Brigands of the IMF
The HQ2 was built in 2002 when the organization profited from the high interest rates prevalent during the Asian foreign exchange crisis. “It is a building built on the blood and tears of the Korean people,” said Yun Tack, a professor at Seoul National University.
The IMF is an organization that is fed by economic crises. It enjoyed great profits from the 68 bailouts during the 1980s and 1990s. Its dark ages were during the Goldilocks period from 2002 to 2007. No one applied for a bailout, and its interest revenues were exhausted.
It cut 15 percent of its staff, sold 403 tons of its gold reserves and shut down many overseas offices. Its reputation was further disgraced by the sex scandal surrounding IMF Director Dominique Strauss-Kahn and the revelation by a senior economist that the organization had detected signs of a looming global financial crisis but covered them up for a long time.
The organization has become excited once again as emerging economies are showing signs of developing foreign currency crises. Last weekend, the IMF issued a warning that emerging markets need to improve their fundamentals and basic economic policies.
It appeared that the warnings were targeted at Argentina, which already experienced a drastic fall in its currency, and Turkey, which increased its benchmark interest rate from 4.5 percent to 10 percent. The IMF appeared to have forgotten that it caused unnecessary suffering to Asian countries by insisting on excessive austerity during the 1997 foreign exchange crisis.
Come to think of it, the IMF has been an angel to advanced countries but a devil to developing economies. The Federal Reserve was fully responsible for the subprime mortgage crisis in the United States. During the European fiscal crisis, the European Central Bank was totally in charge. The IMF remained silent about its unconventional measures of super-low interest rates and massive quantitative easing.
The organization also did nothing about Japan’s high-risk Abenomics. In contrast, it always resorts to the conventional remedies of high interest rates and fiscal austerity upon any signs of instability in developing nations.
The key to the double standard of the IMF is whether the crisis is in a key currency country or not. Countries with key currencies such as the dollar, euro and yen are never stretched out on the IMF’s operating table. They are allowed to print more and more money.
Other countries, however, can be sliced open at any time unless they pass the tests involving foreign debt, current account balances, foreign currency reserves and fiscal balances. Some say net creditor countries are safe, but that is not entirely true.
Brazil became a net creditor country for the first time in 500 years, but it still experienced a drastic fall in its currency.
The latest crisis was prompted by the Fed’s tapering off its stimulus. The United States said that this process will normalize the U.S. economy, and any instabilities created in emerging markets are the countries’ problems. The U.S. media is saying that the rising instability in the emerging countries is not an economic issue but a political crisis.
The Fed will certainly speed up its tapering. And after the process is over, we will face interest rate hikes. The United States, Europe and Japan put their own national interests above everyone else. They never show mercy.
When we look back, foreign currency crises recur in countries with larger economies than Korea, such as Brazil, Russia, India and Mexico. They are not key currency countries.
Fortunately, Korea is a net creditor with a current account surplus and high foreign currency reserves. But taking into account the sad state of the Korean won, it is best to avoid another foreign currency crisis. And the situation will be completely different if interest rates go up. Korea’s household debts and national debt - including those of public institutions - are each over 1,000 trillion won ($921.69 billion), and they can easily detonate a crisis at any time.
The IMF faces a more serious crisis than its double standard. The world considers the IMF to be a global loan shark and not many countries are willing to accept its murderously high interest rates and brutal austerity.
The time has come for the IMF to use a fair global standard for all countries. Or else it can always become a target of the anticapitalist movement - just like the Koreans’ bitter sentiment toward its fancy HQ2 building.
*The author is a senior editorial writer of the JoongAng Ilbo.
By Lee Chul-ho