Post of the Day
June 8, 1998
From our AOL
Subject: Asia, IMF & CPQ
Not unlike many other high tech comapnies Compaq has an interest in what happens in Asia. Perhaps Compaq more than many, because the major competitive threat to Compaq's European business is a Japanese box maker, is sensitive to Asian pressures in markets abroad. Perhaps less urgency is felt concerning Sony and others making enroads in the U.S. domestic markets, but there are potential threats here too.
|"By having IMF funds readily at hand, the developing economies in Asia don't have the incentive that American enterprises do to be efficient."|
I know most of you must be weary of hearing about Asia, but there is another issue that is worthy of some attention. There is a serious dilemma, and disagreement in the economics profession concerning the International Monetary Fund and it's rush to save Asia from itself. Sure there's real consequences if something is not done to cure the economic ills that are so clearly evident in the region. However, the IMF is virtually becoming an insurer of economic systems. By having IMF funds readily at hand, the developing economies in Asia don't have the incentive that American enterprises do to be efficient. If an American firm goes bust, the stock holders simply bite the bullet, in the Asian Tigers, they get saved by government intervention with gauranteed loans from the International Monetary Fund. That dimunition of risk is not available, for the most part, to American business, but yet through Congressional funding of the IMF we make that insurance available to Asian competitors of American businesses.
This is called moral hazard. Such insurance makes the insured less cautious than they may have otherwise been about the risk for which they are insured. The Asian Tiger economies have serious fundamental institutional, economic, and political problems they are able to continue to ignore as long as the American taxpayer continues to foot the bill for the IMF to insure against massive failure in those economies. What's worse, is the American taxpayer provides this insurance to these Asian Tigers, whose major competition are mostly American companies, like Compaq, Micron Technologies, et al.
|"This is one share holder of three high tech companies that may have fared better had the hands of the IMF been kept far from those markets."|
If we are to have economic development in Asia, it must be based on a level playing field. There is a narcotic effect for the businesses and governments in Asia resulting from knowing that the International Monetary Fund will always be there to act as their agent with the U.S. Congress to continue to insure against the certain economic failure brought on by corrupt, inefficient, or questionable business practices. If we are to have a global economy, these exportations of economic woes to the U.S. taxpayer really has to be re-examined.
Less charitable folks in the economics profession, also suggest there is far more at hand here than simple moral hazard. These economists point to the fact that much of the negotiations and sometimes data and terms are held in confidence by IMF's staff. These critics argue, with some merit, if these deals won't stand the light of day they shouldn't be made, and they certainly shouldn't be funded by the U.S. government. If these Tigers are really as advertised, let them compete don't subsidize their risky practices by IMF insuring their continued viability; the real Tigers will emerge, and the others should disappear.
This is one share holder of three high tech companies that may have fared better had the hands of the IMF been kept far from those markets. Seems just a little unfair to me, but I'm not exactly neutral in all of this.