2. What Happened to That “Global Architecture?”

When Brazil had devalued the real, the folks in Washington who claim responsibility for global monetary order were uncustomarily silent. One is tempted to say there was stunned silence, but that would imply that Brazil's move came as a surprise to the Treasury and the International Monetary Fund.

Surely it didn't, but there was another very good reason to keep quiet. Brazil had been a test case for that new global “financial architecture” that President Bill Clinton proclaimed to the world last fall. The real's collapse made abundantly clear what some of us had assumed: The promise of a “new architecture” was just more Bill Clinton hot air.

Of course, the hot air had a purpose, as do all of Mr. Clinton's skill fully crafted orations. He wasn't striving for “new architecture” as he claimed, but rather trying to save the old architecture, which was in danger of collapse. Specifically, he was trying to persuade the US Congress to cough up more money for the tottering IMF. The Brazil gambit was one of the arguments employed. If the IMF were not refinanced, it could not bail out Brazil and Brazil would go the way of the Asian tigers, with serious repercussions for the US and world economy.

The string of disasters midwifed by the global money managers is reflective not only of misjudgments but of a fatal flaw in the existing “architecture.” Mr. Clinton had the words right in September, he just didn't know the score. Either new architecture or no architecture at all is needed. But a president who spends most of his working hours figuring out how to buy votes with public money is not likely to be very critical of a multilateral agency that does pretty much the same thing. It subsidizes two very influential constituencies, international bankers and the profligate politicians who preside over such places as Russia, Indonesia and Brazil.

These bankers and politicians got the IMF's number a long time ago. They knew that institutions, like natural organisms, fight for self-preservation. The IMF keeps itself in business by winkling money out of rich nations such as the US and handing it out to the poorer brethren, who usually are poor because of gross economic mismanagement. In this age in which income transfers are deeply imbedded in politics, the IMF doesn't lack for clients.

What is absent is any convincing evidence that this has made the world a better place. Africa appears to be regressing, despite the billions poured into it by the IMF, US aid agencies and the World Bank. Asia, acting partly on IMF and US Treasury advice, took a big step backward, in terms of living standards, with the 1997 devaluations, as did Mexico in 1994. The Brazilian and Russian governments, living well beyond their means, were shielded from reality for far too long. The people in such places now must pay a price and their politicians will blame everyone but themselves, including Bill Clinton and Michel Camdessus.

The IMF has proved that it is impossible to get good conduct from politicians by subsidizing their bad conduct. President Fernando Henrique Cardoso (Brazil) made himself very popular when he killed hyperinflation and gave his country a solid currency with the Real Plan. But he didn't follow through by reforming government itself. Had there been no international safety net supplied by an act of the US Congress, he might have seen fit to work harder. There should have been plenty of evidence around that monetary policy alone cannot compensate for governmental indiscipline.

So it's back to the drawing board for the US Treasury and the IMF – will they really come up with some new “architecture” this time, some thing like going out of the global management business? Don't count on it.