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American Farmers Fall In Love With IMF

© Bryan Johnson

President Clinton has been asking Congress all year to pony up an additional $18 billion for the International Monetary Fund (IMF). The Senate has approved the money, but so far the House of Representatives has refused. Early indications are that the full $18 billion is not likely to be agreed to in the House. This leaves a potential battle with the Senate in a conference committee later this summer. However, there now is a new player that has entered the debate in hopes of convincing lawmakers increase funds for the IMF: the American farmer. U.S. farmers export many agricultural products to Asia and rightly are concerned that the continuing Asian economic crisis will cut into their sales. But their faith that the IMF can "cure" these ailing Asian economies largely is misplaced.

THE IMF'S IMPACT ON AGRICULTURAL EXPORTS

MYTH #1: The IMF is a necessary tool to stabilize markets in financial crisis, and this helps to maintain market share for U.S. exports. Supporters of the International Monetary Fund believe that it is uniquely positioned to bring market stability to economies in crisis. For example, Dean Kleckner, president of the American Farm Bureau Federation, recently testified before Congress that "U.S. agriculture's ability to gain and maintain market share is based on many factors, including...the ability to utilize market stabilizing tools such as a properly functioning IMF." 1

Reality: The IMF is more likely to undermine the market than to bring it stability. Bailouts shield investors and politicians from the consequences of poor decisions by "socializing" risks - spreading them across a bigger constituency and thus reducing the costs associated with each failed investment. Many people end up paying for an investor's errors. The costs of failure for the investor are reduced and, either directly or indirectly, the IMF compensates investors when their plans fail. IMF bailouts encourage speculation of the sort that investors probably would avoid if the IMF were not around to shield them from failure. Bailouts also signal governments that they will not have to bear the costs of failing to reform their economies; instead, the IMF will pay the price of their inaction. Thus, IMF activities neither prevent nor cure financial crises.2

The Administration has portrayed IMF funding as a way to avoid or mitigate the consequences of the Asian crisis for U.S. agricultural exports. According to August Schumacher, Jr., under secretary for Farm and Agricultural Services at the U.S. Department of Agriculture, "The recovery of U.S. agricultural exports will depend on the success of IMF-led efforts."3 However, an IMF bailout is more likely to work against increasing U.S. agricultural exports to Asia, and it may even aid the industry's foreign competitors. For example, Indonesia, South Korea, and Thailand are the sources of about 8.5 percent of the agricultural, fish, and forestry products imported by the United States in FY 1997. Indonesia and Thailand, in fact, imported only $1.4 billion of U.S. agricultural, fish, and forestry products, but they exported $4.5 billion of these products to the United States in 1997, giving these two countries a $3.1 billion trade surplus with the United States on agricultural, fish, and forestry products. 4 This trade surplus is likely to worsen in the wake of the Asian financial crisis, regardless of IMF assistance. While trade deficits by themselves are neither good nor bad, they do serve as a barometer of trade relations. IMF assistance will further worsen the U.S. trade deficit by aiding foreign competitors of the U.S. agricultural industry.

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