The IMF Should Have Been Mothballed Long Ago and Put in a Museum
The International Monetary Fund (I.M.F.) was unsuccessful in covering up its nefarious activities in Greece, as WikiLeaks uncovered back in April. Later, the I.M.F.’s internal watchdog team released a report condemning the I.M.F.’s actions. But, in typical I.M.F. fashion, “before the report was published over the summer, fund officials demanded that the watchdog unit tamp down and in some cases remove sections of the report that said the I.M.F. was not releasing documents that evaluators sought,” Landon Thomas Jr. of the New York Times writes. However, the Fund’s cover-ups have been more successful in the past.
On August 14, 1997, shortly after the Thai baht collapsed on July 2nd, Indonesia floated the rupiah. This prompted Stanley Fischer, then Deputy Managing Director of the I.M.F., to proclaim that “the management of the I.M.F. welcomes the timely decision of the Indonesian authorities. The floating of the Rupiah, in combination with Indonesia’s strong fundamentals, supported by prudent fiscal and monetary policies, will allow its economy to continue its impressive economic performance of the last several years.”
Contrary to the I.M.F.’s expectations, the rupiah did not float on a sea of tranquility. It plunged from 2,700 rupiahs per U.S. dollar at the time of the float to lows of nearly 16,000 in 1998. Indonesia was caught up in the maelstrom of the Asian crisis.
By late January 1998, President Suharto realized that the I.M.F. medicine was not working and sought a second opinion. In February, I was invited to offer that opinion and began to operate as Suharto’s Special Counselor. After many discussions with the President, I prescribed the following antidote: an orthodox currency board in which the rupiah would be fully convertible into the U.S. dollar at a fixed exchange rate and would be fully backed by U.S. dollar reserves. On the day that news hit the street, the rupiah soared by 28 percent against the U.S. dollar on both the spot and forward markets. These developments infuriated the I.M.F., as well as the U.S. government.
Ruthless attacks on the currency board idea and me ensued. Suharto was told in no uncertain terms – by both the President of the United States, Bill Clinton, and then Managing Director of the I.M.F., Michel Camdessus – that he would have to drop the currency board idea or forego $43 billion in foreign assistance.
Economists jumped on the bandwagon, too. Every half-truth and non-truth imaginable was trotted out against the currency board idea. For me, those oft-repeated canards were outweighed by the full support for an Indonesian currency board (which received very little press) by four Nobel Laureates in Economics: Gary Becker, Milton Friedman, Merton Miller, and Robert Mundell. In addition, Margaret Thatcher’s economic guru, Sir Alan Walters, weighed in in support of the CBS idea. He not only supported it, but, on good intelligence, he warned me that the I.M.F. and the Clinton Administration were going to mount a defamation campaign, which they did.
Why all the fuss over a currency board for Indonesia? Merton Miller understood the great game immediately. He wrote to me when Mrs. Hanke and I were in residence at the Shangri-La Hotel in Jakarta, saying the Clinton administration’s objection to the currency board was “not that it wouldn’t work but that it would, and if it worked, they would be stuck with Suharto.” Much the same argument was articulated by Australia’s former Prime Minister Paul Keating: “The United States Treasury quite deliberately used the economic collapse as a means of bringing about the ouster of President Suharto.” Former U.S. Secretary of State Lawrence Eagleburger weighed in with a similar diagnosis: “We were fairly clever in that we supported the I.M.F. as it overthrew (Suharto). Whether that was a wise way to proceed is another question. I’m not saying Mr. Suharto should have stayed, but I kind of wish he had left on terms other than because the I.M.F. pushed him out.” Even Michel Camdessus could not find fault with these assessments. On the occasion of his retirement, he proudly proclaimed: “We created the conditions that obliged President Suharto to leave his job.”
Thanks to the official spinners at the I.M.F., setting the record straight has proven to be a Sisyphean task. Indeed, the spinners have been busy as little bees rewriting monetary history to cover up the I.M.F.’s mistakes and lies. To this end, the I.M.F. issued a 139-page working paper “Indonesia: Anatomy of a Banking Crisis: Two Years of Living Dangerously 1997–99” in 2001. The authors whitewash the currency board episode asserting, among other things, that I counseled President Suharto to set the rupiah-dollar exchange rate at 5,000. This pseudoscholarly account, which includes 115 footnotes, fails to document that assertion because it simply cannot be done. That official I.M.F. version of events also noticeably avoids referencing any of my published works or interviews based on my Indonesian experience, including an extensive International Herald Tribune interview, “Steve Hanke: Voice of Suharto’s Guru,” (March 20, 1998) in which I contradict the 5,000 rupiah to U.S. dollar fabrication.
That episode and its manipulations are not unique in the political world. It is useful, though, after time and events unfold, to set facts straight in order to understand the situation then and now. From that point of view, WikiLeaks is clearly engaged in a public service activity.