Belmont Club

Paul Keating remembers Geithner

The Sydney Morning Herald summarizes former Australian PM Paul Keating’s recollections of Tim Geithner. Paul Keating was Labor politician with particularly close ties to Indonesia. Now I don’t know how much of this is Keating grinding his axe, but I reproduce the gist of it on an FYI basis.

When Barack Obama announced his champion to rescue the world from economic ruin, it was the first time most Americans had ever heard the name Tim Geithner. … If anyone in the US media had thought to ask a former Australian prime minister for his assessment, they would have heard a different view. And they would not have been so surprised at Geithner’s performance since. …

“Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis. … It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power. … The IMF is the gun that can’t shoot straight. They’ve been making a mess of things for the last 20-odd years, and the greatest mess they made was in east Asia in 1997-98, so much so that no east Asian state will put its head in the IMF noose. …”

Intriguingly, Keating claims that it was the traumatic experience of the IMF’s intervention that made China build up a staggeringly large warchest of funds. The reason: never to be forced to go to the IMF again.

“These reserves are so large at $US2 trillion as to equal $US2000 for every Chinese person, and when your consider that the average income of Chinese people is $US4000 to $US5000, it’s 50 per cent of their annual income. It’s a huge thing for a developing country to not spend its wealth on its own development.”

Is this some flight of Keatingesque fancy? The former deputy governor of the Reserve Bank of Australia, Stephen Grenville, doesn’t think so: “After the Asian crisis, the countries of east Asia decided that they would never go to the IMF again. The IMF is taboo in east Asia. Look at the evidence. The revealed preference of the region is that no one has gone to the IMF since, even when they needed the money.” …

Keating went on to argue that, by frightening the Chinese into building their vast $US2 trillion foreign reserves, Geithner was responsible for the build-up of tremendous imbalance in the world financial system. This imbalance, in turn, according to Keating, contributed to the global financial crisis which has since devastated the world economy.

So should we believe Keating? Not necessarily. But it does mean the public should look closely at how the shells are being swapped around the table. Don’t lose sight of the bean folks. Don’t lose sight of the bean.