-Caveat Lector-
CRISIS COUNTRIES: IGNORE MARKETS AT YOUR PERIL
Explanations for the economic disasters in East Asia, Russia and
Brazil over the past two years fall into two basic categories,
say economists. One theory is that markets there were not
sufficiently regulated and that a new "financial architecture"
based on more regulations and international safety nets must be
erected.
Other theorists -- including Milton Friedman, Walter Wriston and
George Schultz -- argue that the crises were due to departures
from the operation of free markets.
o The free marketers say the Asian financial crisis was
aggravated by the intervention of institutions such as the
International Monetary Fund which, in advancing credit,
signaled the countries' vulnerability and produced a run
on its currency.
o In Russia's case, insider dealing and outright fraud
prompted IMF intervention leading to massive flights of
capital -- which drove down the ruble by more than 60
percent and sharply depressed stock values.
o And in Brazil, large budget deficits coincided with
pegging the nation's currency to an unrealistic rate --
resulting in investors shorting the currency and
extracting their capital.
As the crisis countries attempt to work their way out of the
mire, those that are succeeding are doing so along the lines
prescribed by the free-market advocates.
o Foreign direct investment has resumed in reform-minded
Thailand and South Korea.
o By restraining its deficit spending, Brazil has seen its
foreign-exchange reserves, equity markets and currency
value rise.
o Meanwhile, Russia, Indonesia and Malaysia -- which have
shunned market-oriented policies -- continue to suffer
share declines in gross domestic product, weakened
currencies and depressed asset values.
Despite this evidence, the IMF wants to establish a new
Contingent Credit Line facility back by a $90 billion
replenishment of its resources. Financial experts see this as
preparation for a repeat of its former failed interventionist
policies.
Source: Charles Wolf Jr. (RAND Corporation), "Markets, Not
Architects, Will Solve Economic Crises," Wall Street Journal,
July 20, 1999.
For more on Currency Issues
http://www.ncpa.org/pi/internat/intdex2.html
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