Give the IMF Some Credit

James Glassman’s diatribe against the International Monetary Fund [“Who Needs the IMF?” op-ed, Dec. 9] is full of misconceptions about the fund’s original purposes and present functions.

The IMF was not set up primarily “to help guard the world’s currencies under the Bretton Woods monetary agreement” and did not change its aims after par values for currencies were abandoned. Its original purpose, which still holds, was to help countries in need to finance balance-of-payments deficits so that they would not take actions that would harm their trading partners.

Mr. Glassman would substitute bankruptcy for that function. Of course, countries do not go bankrupt. He also claims that IMF credits to Asian countries are “blowing a chance to inject freedom, imagination and competition into [those] economies.” That is precisely what the IMF is trying to accomplish in Korea.

Mr. Glassman trots out the well-worn “moral hazard” argument: the potential availability of IMF loans encourages countries to act “imprudently.” What he ignores is that IMF credits come with policy conditions that borrowing countries find painful to accept and implement.

Korea’s economy is badly in need of reform, given the degree of government intervention in it. Mr. Glassman believes that the free market could accomplish those reforms better than an IMF program. How would the free market have dealt with the problem that Korea was running out of reserves and that without IMF financing it might have resorted to trade restrictions that are hardly consistent with free markets?