Part of the debate surrounds the soundness of investment. That argument goes back to the 1994 bailout of Mexico. The Mexican model said that if speculative, high-priced loans went bad, the U.S. Treasury and the IMF would step up and bail out big lenders at the expense of taxpayers. This effectively encouraged big financiers to charge ahead with reckless investments.
Now that Russia is defaulting on loans, that assumption is being called into question. And I say, it's about time. The notion that Russia was too big or perhaps too nuclear to be allowed to fail has encouraged lenders to pour scores of billions into the Kremlin. Most of these loans have vanished into budget deficits.
And this experience has been replicated many times by the IMF loans when austerity and efficiency are postponed by huge infusions of capital. Congressman Dick Armey believes that these bailouts prevent market discipline on the part of lenders and debtor. He says, "The IMF has done Russia no good," arguing that they have subsidized "cronyism and corruption."
Well, the battle lines are set for a vote on increased IMF funding. But this time, Congress has a textbook case of what the IMF can or cannot do in Russia. If they look at the evidence, I think they will vote down increased funding for IMF.
I'm Kerby Anderson of Probe Ministries, and that's my opinion.
© 1998 Probe Ministries International