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June 22, 2005

The Blue Moon Is Gone (Why Oh Why Can't We Have a Better Press Corps?)

And the Wall Street Journal editorial page has reverted to type and is once again bats--- insane. Brad Setser reports:

Brad Setser's Web Log: Fantasy based opeds in the Wall Street Journal: ...the Wall Street Journal 's Tuesday oped 'The IMF's Debt Ambitions'... is premised on the following argument:

investors were conditioned by bailouts in Mexico, Thailand and South Korea, and by the IMF's ever expanding loan portfolio in Argentina to believe that no matter how many times Buenos Aires broke its promises it would not be allowed to fail. The money poured in, not irrationally, until the Bush Administration ended the bailout habits of the IMF.

The Bush Administration ended the bailout habits of the IMF. Hmm.

Let us hold that statement up to the standards of the reality-based world.

  1. In early 2001 the Bush Administration approved a $10 billion IMF loan to Turkey. That loan was augmented the fall of 2001 and again in 2002. Last I checked, the Bush Administration was in charge of the US government then. All told, Turkey got about $23 billion from the IMF -- a bailout that was far larger, in relation to Turkey's GDP (total disbursements were equal to 11.5% of pre-crisis GDP), than the Clinton Administration's bailout of Mexico (total disbursements, including direct disbursements from the US, equal to 7% of pre-crisis GDP). And Mexico paid its loan back far faster than Turkey has been able to repay.

Don't believe me? Check out the IMF's financial data, which shows it outstanding exposure to Turkey quite clearly (data in SDR). Full disclosure -- I worked for the Treasury in 2001, so I know this story quite well.

  1. In the summer of 2001 the Bush Administration supported an IMF loan to Brazil in an effort to protect Brazil from 'contagion' from Argentina. That loan was expanded significantly in the summer of 2002 when Brazil came under intense pressure prior to the election of Lula. All told, Brazil received an IMF credit line of $35 billion, and most of that -- $30 billion -- was lent out. That is far more than Brazil received in 1998-99 with the backing of the Clinton Administration (peak lending then was about $17 billion). This bailout has worked pretty well -- Brazil recovered and is now making significant payments back to the Fund. But so did the bailout of Mexico. A successful bailout is still a bailout....

  2. Uruguay. It got about $3 billion from the Fund in 2002, along with a (very short-term) bilateral bridge loan from the US. $3 billion does not sound like a lot, but it is about 15% of Uruguay's small GDP. That's a big bailout in my book.

  3. In the summer of 2001, the Bush Administration backed a $8 billion augmentation of the Argentina's existing $15 billion IMF package -- a decision that the IIE's Mike Mussa has called one of the worst in Fund history. That $8 billion -- $5 billion of which was disbursed immediately-- effectively provided about 1/2 of the total net financing that the IMF provided to Argentina from the end of 2000 on. Look at the surge in IMF lending to Argentina in September of 2001 -- a surge that was the direct product of a decision make by the Bush Administration.

Remember that part of the initial $15 billion package just refinanced maturing IMF debt, and the $15 billion was more backloaded than the $8 billion augmentation, so not all of it was disbursed.

All in all, the Bush Administration consistently backed bigger loans to more indebted countries that the Clinton Administration. Those IMF loans have been repaid more slowly. Those are the facts. Verifiable on the IMF's web page. Or, if you trust Roubini and Setser, nicely packaged in Bailouts or Bail-ins.

Posted by DeLong at June 22, 2005 04:12 PM