Last year, the International Monetary Fund’s (IMF) bailout of Ireland and Greece put U.S. taxpayers on the hook for over $46 billion. It’s time to get ready for the next round of European bailouts in 2011. IMF First Deputy Managing Director John Lipsky says that “we will stand by with our European partners to provide support.” Speculation has been circulating that this will mean an upcoming taxpayer bailout of Portugal and Spain.
According to the Washington Post, “Portugal remained the most immediate concern, with analysts sounding alarms over its failure to meet targets to reduce government spending. But given Portugal’s tiny economy, the more important issue continued to be conditions in Spain — the fourth-largest economy among the 16 nations that share the euro as their currency.
“Though Spain’s fiscal situation is far better than that of Portugal, Ireland or Greece, analysts fear its banks might be harboring hidden bad debts from a real estate crash similar to the ones in Ireland and the United States.”
A couple weeks ago, the IMF sent a special unit to meet with the Bank of Spain to discuss a proposed rescue package. In order to survive, the IMF must provide credit. These potential bailouts will line the pockets of the IMF at the expense of taxpayers. The UK-based Guardian writes that “fresh from imposing tough conditions on Ireland as the price of its bailout, the International Monetary Fund’s bureaucrats plan to concentrate on a matter closer to home in the new year — sprucing up their offices in downtown Washington, DC.”
Just eight years ago, the IMF spent $150 million on a second building complete with a stunning external waterfall. They claimed that the original headquarters was simply too small for their staff, who receive bloated salaries. Peter Chowla, program manager at the IMF watchdog Bretton Woods Project, states, “after a nice financial crisis, the IMF’s balance sheet is looking very healthy — lots of interest to pour in from Greece and Ireland and commitment fees on money never even lent to Colombia, Mexico and Poland. So the fund is thinking about spending some of the proceeds on remodeling its headquarters.”
Taxpayer bailouts of Spain and Portugal will make things worse. By holding out the prospect of a bailout to any country or big bank that fails, the IMF has only encouraged reckless behavior. Unfortunately, IMF officials have an incentive to expand the roles and functions of the international bureaucracy. Most IMF staff members are paid six-figure salaries with generous perks including housing and education for family members. These IMF officials jet-set around the world giving mostly bad economic advice to nations.
IMF officials who receive tax-free salaries are notorious for wrongly advising nations to raise taxes. In a recent report, the IMF urged the United States to enact their plan, which would increase taxes by up to 60 percent. IMF bureaucrats have recently told Eastern European states to repeal their successful flat taxes. In many of these countries, the real problem is overspending and taking on too much debt. According to the IMF’s European Department Senior Adviser Anne-Marie Gulde, “The idea of moving away from the flat tax to a progressive tax is very much one of the measures that we’re looking at. It could help to increase revenues while putting more of the burden on higher-income groups.”
We must pressure Treasury Secretary Tim Geithner to veto these irresponsible taxpayer bailouts. American taxpayers should not be forced to reward countries with poor economic policies and banks that make risky loans. These bailouts encourage reckless behavior and allow IMF bureaucrats to live large at our expense.
Matt Kibbe is the President and CEO of FreedomWorks.