Is It Time to End the IMF and WTO? - American Thinker (I know, conservative source, but interesting) [View All]

[pampango]

http://www.americanthinker.com/2009/11/is_it_time_to_end_the_imf_and.html

"We are now in the second year of the worldwide Great Recession partly caused by the inaction of the International Monetary Fund (IMF) and the inadequacy of the World Trade Organization (WTO). The problem is that countries found ways to exploit international rules to their own advantage. As a result, these two institutions allowed huge imbalances in international trade and international cash flow to destabilize the economy of the United States. Perhaps it is time for these institutions to fade into the sunset."

"The primary cause of the current Great Recession was the trade imbalances among countries. In a nutshell, the Asian mercantilists (countries that pursue policies to maximize exports and minimize imports) brought about the Great Recession through their currency manipulations. For years, their central banks bought up the extra dollars that their exporters were earning in America, and used the proceeds to buy American financial assets. They did so in order to keep their currencies artificially weak. Through this strategy they were able to lower the price of their exports and raise the price of their imports, giving their industries a competitive advantage in international markets and giving American industry a competitive disadvantage. ... Balanced trade can grow forever, but a growing imbalance of trade eventually bankrupts the trade deficit countries, ruining the markets for the trade-surplus countries and for other trading nations."

The International Monetary Fund agreement should have prevented the very actions by central banks which caused and perpetuate the Great Recession. Specifically, Article IV of the IMF Articles of Agreement requires that countries "avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members." Yet the IMF never did anything to enforce the agreement. As late as August 20, 2008, economist Brad Setser reported that the IMF was beginning to consider the possibility of enforcing this provision in their agreement.

Of course, these institutions do not deserve as much blame as do the American Presidents who, beginning with Clinton, have all permitted Asian mercantilism without taking adequate action. The U.S. is capable of looking after its own interests. Its foreign policies and its trade policies do not require international institutions as intermediaries. Presidents Clinton, Bush, and Obama have intentionally ignored Asian mercantilism rather than deal with it.
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As a conservative publication their answer is more bilateral free trade agreements (they tout NAFTA in the article) and less reliance on multilateral organizations (consistent with their desire to withdraw from the UN and stay out of Kyoto), but the role that the IMF and WTO played in causing the Great Recession is, if not news, clearly explained.

While they blame Clinton, Bush and Obama more than the institutions, it is possible that Clinton thought that Article IV would be enforced after China joined the WTO and IMF and it was Bush who did nothing to about our trade imbalance with China when he had institutional tools to do something. Obama has had a full plate in his first year, but has imposed unilateral tariffs on some Chinese exports (again yesterday) and will be negotiating in China later this month.