William Lassetter and Shailendra J. Anjaria

The following two letters to the editor of the Washington Post, written in response to the preceding selection, "Who Needs the IMF?" appeared on 23 December 1997. William Lassetter lives in Charlottesville, Virginia. Shailendra Anjaria is the director of the fund's External Relations Department.

Letter One

James K. Glassman's judgment of the IMF ["Who Needs the IMF?" op-ed, 9 December 1997] is a little simplistic. The failures of financial systems such as happened in Southeast Asia and Korea are the result of two processes. One, as Mr. Glassman discusses, is the misallocation--or even misappropriation--of equity and debt capital to nonproductive or marginally productive uses. The other, which he does not mention, is a loss of confidence on the part of investors and creditors and the consequent flight of capital in a last-out-takes-the-hit panic.

The mission of the IMF should be to address directly the second problem (capital flight). The IMF, in such cases, is the creditor of last resort that supplies capital at secured market rates on the basis of good faith rather than good credit. The conditions that it imposes should be designed to be a convincing demonstration that the first problem (misuse of capital) is being addressed with full intent and good faith and that good credit will follow in due course.

In the process, the IMF should ensure that the losses entailed as a result of bad investments, both to local and foreign investors, are fully exposed to a free market's corrective influence. Nobody should be forgiven his investment sins--least of all the rich and powerful made so through those very sins.

But it is in the interest of the world that economies, where they will, are stable and productive. And if the IMF can accomplish that as creditor commanding a good return with good assurance, then we have lost nothing, and gained much.

William Lassetter

Letter Two

James K. Glassman misunderstands the recent role of the International Monetary Fund in Asia. His claim that by making its financial resources available to Korea, the IMF is stifling reform, competition, and economic recovery is just wrong, and his advice to allow "the future to take its own vivid course" is plain dangerous.

In its IMF-supported program, the Korean government has committed itself to liberalize trade, open wider the doors for foreign entry into its domestic financial sector, cease the directed lending and subsidies that favored privileged corporations and aided the system of chaebols (huge conglomerates), and take many other steps to open its economy much further to free market forces.

Is American taxpayers' money wasted in footing the United States' share of the bill for IMF assistance to Korea and other countries? The IMF makes loans, not grants. The interest on loans goes back to our shareholders. Successive Democratic and Republican administrations consistently have supported an IMF of adequate technical and financial clout because, as President Reagan put it to the world's finance ministers and central bank governors assembled in Washington for the IMF annual meetings in 1983: "The IMF is the linchpin of the international financial system. Among official institutions, it serves as a counselor, coaxing the world economy toward renewed growth and stability. At various times in its history, the IMF has provided important temporary balance of payments assistance to its member nations--including my own. At times, it must play the `Dutch uncle,' talking frankly, telling those of us in government things we need to hear, but would rather not."

The IMF was set up in 1945 and has among its goals the promotion of world trade, thereby contributing to growth among nations. IMF financing is to be made available to members to help them deal with balance of payments problems. Mr. Glassman ignores history by asking the world to follow his vivid course, which, unfettered by international assistance to Korea and concerted action through the IMF, would produce deeper industrial collapses and more widespread loan defaults and bank failures. Such a future course would lead us back to the past, to the 1930s era of competitive devaluations, punitive trade barriers, and closed capital markets--an era in which all economies, including that of the United States, would be worse off.

Shailendra J. Anjaria