A Retrospective on the Bretton Woods System

Initially devised to maintain a system of fixed exchange rates, the IMF took on a new role during the Latin American debt crisis of the 1980s-providing moderate amounts of credit, facilitating debt renegotiations, and recommending responsible macroeconomic policies. But the IMF is also applying the lessons of Eastern Europe and the former Soviet Union, where a fundamental economic restructuring was necessary, to Asia. So in Korea, for example, the fund called for reform of inefficient conglomerates and inflexible labor laws. However beneficial in the long run, such changes are not needed to resolve the current crisis. By stepping in too far and too soon, the IMF discourages countries from seeking modest help. Even worse, it encourages bankers to undertake more risky loans, making another crisis more likely.