The Evil Empire and Indonesia Jude Wanniski May 12, 1998

Memo To: House Majority Leader Dick Armey
From: Jude Wanniski
Re: Riots in Indonesia

Thanks to your boldness in opposing the $18 billion replenishment being sought by the International Monetary Fund, there is a genuine opportunity to drive a stake through the heart of the Evil Empire, as I have termed the IMF since the Cold War ended and the USSR dissolved. In many ways, the IMF has produced more suffering, death and disease in the last 3 decades than did the Forces of Darkness it succeeded. I don’t know if I ever told you the story, but it bears repeating now that we read every day about the riots in Indonesia, six months after the IMF administered its patented poison in Jakarta.

In early January 1980, I was among a group of 25 Reaganauts that met with the Gipper at an airport hotel in Los Angeles, to prepare him for the campaign ahead. I was assigned to lead discussion on tax policy and energy policy. These were scheduled for the second and third days of the three-day session. The first day, national security was the topic, with Richard V. Allen the discussion leader, who went on to become RR’s first national security advisor. In the early afternoon, the agenda item was on U.S. intelligence and whether it was being handled properly by the Carter administration. On that first day, I sat quietly except during this discussion, when I raised my hand and Reagan, looking surprised at my intervention, immediately called upon me.

Tongue in cheek, I suggested the federal government could save an enormous amount of money by replacing the Central Intelligence Agency with one bright college kid. All the youth had to do was keep track of the IMF. Wherever it went, I said, we could be sure that in six months there would be riots in the streets by the local populace. As I recall, everyone laughed heartily at this break in the serious discussions about nuclear weapons and Mutually Assured Destruction. The Gipper led the laughter. That was 1980, and in the years since, we have been able to set our clocks by the IMF’s travels. The miseries all over Africa can be traced to IMF programs. So can the continuing impoverishment of Haiti, where the people can dream of living in the paradise called Cuba after suffering for so many decades at the hands of the IMF. In 1989, the first year of the Bush administration, it was an IMF program that was followed six months later by riots in which more than 300 people died in Venezuela.

The world is still trying to figure out how the German people could be so monstrous as to permit the Holocaust that took place under their noses. Yet the Political Establishment of the United States has permitted the IMF for 30 years to kill several times that number through venomous economic policies that invite disease and civil war. The Political Establishment? I’m talking about M-O-N-E-Y, and the big international banks that use the IMF to squeeze blood out of the poorest people on earth. The turmoil in Indonesia is only the most recent manifestation of that evil. In your position as House Majority Leader, you must have noticed that the IMF has had its most enthusiastic support from our Treasury Department, headed by one of the most dangerous men in the world, Bob Rubin, who takes his instructions not from President Clinton, but from Goldman, Sachs. His henchman, Lawrence Summers, the deputy Treasury secretary, is in many ways a more dangerous man, because he has Rubin’s ear and is responsible for Treasury’s reach into Asia in general, Jakarta in particular.

When the poison began spilling into Asia, we at Polyconomics first identified Paul Krugman of MIT as the culprit. It was Krugman (who now claims credit in the NYTimes for having predicted the Asian economic crisis) who traveled through Asia in 1995 urging governments to impose capital controls to prevent “hot” foreign capital from flowing into their countries. Thailand took that advice. (Way back then, Polyconomics advised its clients to get out of Thailand, specifically because of Krugman’s advice.) If you recall, it was the IMF that rushed into Thailand last July to “save it” by offering dollars in exchange for tax increases and budget balancing by Thailand. When the bottom blew out of Thailand’s market, the IMF moved on to Indonesia.

You know, Dick, how the IMF’s Michel Camdessus, backed by Rubin, Summers and President Bill Clinton himself, stomped on Steve Hanke’s currency board. Just as the market had responded by bidding up the rupiah, the IMF cracked it back down. I’m not an unalloyed fan of currency boards, as you know, but I had praised its use in this instance. When the IMF and the White House said it would not advance a dime to Suharto if it defended the rupiah by the Hanke method, the rupiah sank further, wiping out the value of the cookie jars in every household in Indonesia. This was criminal. But it now gets worse. Two weeks ago, our Treasury and the Evil Empire forced down Suharto’s throat a 70% increase in the rupiah price of the energy it was supplying to its people. If the IMF had said it insisted on the government taking 70% of all bread off the tables of the masses of poor Indonesians, there might have been an outcry. To say the government would take 70% of the heating oil and gasoline out of the rupiah’s purchasing power constituted an enormous tax increase, on top of the savage effects of the currency devaluation. If Dick Armey had been an Indonesian, he would have led the riots, I would hope.

Larry Summers of Treasury will insist that when a government sells state-produced natural resources to its own people at a lower market price than it will sell to foreigners it is a violation of free-market principles. Summers, as I’m sure you know by now, is a nitwit. He may have an IQ of 160 or 200, and two Nobel prize-winning uncles in economics, but he is a menace. Thank goodness he has had no influence on domestic policy in the United States, his malpractice confined to Latin America and Asia.

Former Treasury Secretaries George Shultz and William Simon, and former Citicorp President Walter Wriston, are on the mark in arguing the world would be better off without the IMF. I also think the world would be better off, at least as the IMF currently exists under the leadership of Michel Camdessus. It is a powerful force for evil deeds. With the right person at its head, though, and the right policies in place, it could be a powerful force for good. Please shoot for that outcome, with someone like Pedro Aspe of Mexico or Domingo Cavallo of Argentina in charge. Then, wherever the IMF goes, in six months we will find the people dancing in the streets.