1. For an organization regularly accused of wrecking the world, the July IMF-Korea get-together was a lark. 13 years ago in the Asian Financial Crisis (AFC), the Fund pummeled emerging Asia with all sorts of tough but necessary reforms. And Korea, for an OECD economy, took a hell of beating at the time and never forgave the Fund. Never ones to admit they were wrong, Korean elites steadfastly refuse to recognize that the Fund’s advice was necessary and was the reason Korea bounced back so fast from what at the time observers thought was going to be a regional meltdown. And now, as the world’s money flows into Asia in the coming decades, the IMF has had to come crawling back. The irony of course is that Fund advice why the AFC lasted so briefly and why Asia returned to growth so quickly.
But no one EVER thanks the Fund, and now, with the Western powers traditionally supporting the Fund all bankrupt, the Fund desperately needs Asia. So after a 13 year mexican stand-off over the Fund’s AFC advice, the Fund has finally blinked. It has come back to ask to be let back in. For Korea this was a moment of triumph. Not one Korean speaker missed the opportunity to dredge up the old grievances, and not one IMF speaker had the professional courage to defend the Fund. Even Managing Director Strauss-Kahn (right above) didn’t have the backbone to defend the rescue package that saved Korea from default and an Argentine-style depression. Instead the MD told sob-stories about how the IMF refused to loan money to countries which included cuts in children’s services in their programs. See how nice the IMF is now! 15 years ago they were killing babies, now they are saving them from faceless bureaucrats. Make sure to blast-fax that to all the NGOs and the New York Times. Bleh. Strauss-Kahn has otherwise been a good MD after the last two forgettables. But he sounded so craven it was embarrassing.
But I suppose he had no choice. Asians so loathe the Fund that they are brink of building their own local version of it – the Chiang Mai Initiative (CMI). 13 years ago the IMF was able to sink this idea, because Asia was broke and the US was the ‘indispensible nation.’ Now, the world’s cash is in Asia, and its debtors are in the West. The Fund can’t play so hard, and CMI represents a genuine threat to institutional relevance. Hence the peace offering at Asia 21.
2. The conference didn’t say too much you wouldn’t already know from reading the (required) FT and Economist, but at least Asians seem to be realizing the West won’t import as it did before and that the US stimulus was essentially sterilized by cuts in local, state, and consumer spending. This is progress. Two years ago, when the crisis started, the first instinct was to ignore the depth of the crisis in Asia’s major export markets and just wait for things to return to the 2000s status quo: massive overconsumption (and debt) in the US and much of the EU, coupled with a huge run-up in dollars reserves in Asia. Smart observers like Martin Wolf have been arguing since the start that an Asian buying binge is the fastest, safest way out of the crisis, but Asian elites would have none of that. Now at least, I had the impression that they realizing that the wild imbalances of the post-AFC pseudo-expansion are risky to even to them. But I still didn’t see a commitment to reverse the current account surpluses, only to lessen them somewhat. Not even this Great Recession can dent the Asian reflex for mercantilism.
3. There was a great deal of fear that Greece might spiral into a sovereign debt crisis throughout the OECD, and much hand-wringing about how the West could be moved toward structurally lower fiscal deficits. As a political scientist though, I found the answers to the latter curiously technocratic and formal. None of the speakers note what seems to me the obvious, cultural, answer – generational expectations. In the EU, the biggest problem for balance is not corruption, better tax-collecing, the Common Agricultural Program; it is the mindset that the work is ‘oppressive’ beyond 35 hours a week and 55 years of age. It is cultural or socio-political expectations that are the real limits on fiscal seriousness. A ‘social-democratized’ population taught that generous government is a right has made it all but impossible to get Europeans to live within their means. In the US, the primary problem with balance is analogous: an anti-tax commitment on the right that borders on paranoia. I can’t think of any serious economist who believes the US can balance its budget in the medium-term without tax increases – the deficit is now $1 trillion, so please tell me how to fix that without more tax revenue? – but taxes have achieved a totemic significance on the right that makes them nearly impossible to raise despite the obvious mathematical case for them.
By contrast, it seems that Asian populations are willing to pay their taxes and accept less social welfare redistribution. We say that the West needs to learn to live within its means, Asia has some good examples of that. South Koreans want low taxes and lots of goodies like anyone else, but I have never seen, in the press or my students or colleagues here, the suicidal drive to spend without taxing that has become the curse of the contemporary West.
4. A quick tip to the IMF guys at these big conferences: maybe you shouldn’t clique up so much and be unfriendly to everyone else; that is why people think you are a big conspiracy. I defend the IMF all the time, but really, the IMF does bring some of the conspiracy thinking on itself. A little people skills would go a long way – how about not giving the impression that the rest of us are wasting your time? I have been to many conferences with IMF types (I wrote my dissertation on the Fund), and again and again I have seen them tie-up together in little knots, where they whisper (yes, whisper) among themselves, and generally not talk with the others as much. Not only is it the royal blow-off to the rest of us, it creates among the suspicious the perception of a disinterested priesthood. I guess global domination means they don’t have time to talk with some lowly political scientist. Hah!