Johns Hopkins Magazine -- June 1998
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JUNE 1998

P U B L I C    P O L I C Y &    &    I N T E R N A T I O N A L    A F F A I R S

Hanke squares off against the IMF... journalists train at SAIS... helping nonprofits to profit... a lawyer turned missionary

Hanke (left) with Suharto
Photo courtesy Steve Hanke
Professor Hanke vs. the IMF

When Indonesia's currency tanked earlier this year, losing 80 percent of its value, Hopkins professor of political economy Steve H. Hanke took on the International Monetary Fund (IMF). Hanke had been called in as an advisor by Indonesian president Suharto. The economist advocated a comprehensive reform plan that included pegging the Indonesian rupiah to a fixed exchange rate, controlled by a currency board. The IMF, which was offering Indonesia's ailing economy a $43 billion aid package, balked at the currency board and threatened to rescind its proffered bailout. For a few weeks, Hanke and the IMF squared off in a vigorous debate until Suharto reached agreement with the fund on Hanke's plan, minus the controversial currency provisions.

Not backing down, Hanke says that in the long run he'll be proved right: "Indonesia will be in the middle of the soup again in three or four months, and back looking at currency boards."

The trouble in Indonesia started last August, when the country allowed the rupiah to float on the world market (a decision applauded by the IMF, Hanke notes ruefully). The Indonesian economy was beset by a number of problems--cronyism, a weak banking system, inflation. When investors saw the safety net of a fixed exchange rate disappear, they bailed out, dumping rupiah. The currency's value dropped like a dead pigeon, virtually bankrupting the country's private sector and sending import prices soaring. The cost of rice increased 25 percent in three months; cooking oil rose 97 percent. Riots broke out. The IMF fashioned its $43 billion bailout, contingent on Suharto's enacting reform measures to bolster the economy.

Enter Hanke. As the crisis deepened, Suharto sent for him, to hear about currency boards. A currency board fixes a country's currency at a set value against a stable currency like the U.S. dollar, and backs it note for note with reserves. The country's central bank no longer controls the money supply or interest rates, so it can't make bad short-term decisions under political pressure. Currency boards work, Hanke says, because international investors trust them to maintain the value of the currency. He has advised Argentina, Estonia, Lithuania, and Bulgaria, all of which have established some form of the system and stabilized their monetary systems.

Once the IMF objected to Hanke's proposal, numerous governments weighed in against the Hopkins professor as well. Suharto heard from Bill Clinton and the finance ministers of several of the G7 industrialized nations. The IMF argued that Indonesia has neither the cash reserves nor a strong enough banking system to make a currency board work. Suharto's wealthy family would further line its pockets, critics charged, while interest rates would soar.

Wrong, says Hanke. He doesn't deny that Indonesia needs serious reform. But he claims that a currency board would stabilize prices and reassure investors that the country was a worthwhile risk, promoting the investment it needs to get back on its feet.

He's baffled by the IMF's objection that Indonesia's banking system is too shaky for a currency board. He notes that the fund has endorsed the creation of boards in Bosnia-Herzegovina and Bulgaria, two countries that, for all intents, have no banking system at all. "I think the IMF didn't know what it was doing in Indonesia, and it had to come up with something. You had the IMF pouring gasoline on what had been a small fire."

The controversy brought national press attention (including a lengthy National Public Radio interview and a page-one story in The Wall Street Journal) to Hanke, who doesn't seem to mind the attention. During the debate, some monetary economists took shots at him in the press, questioning his qualifications and his judgment. Unfazed, he claims to have the world's markets on his side. He notes that last January, when the IMF presented a plan to strengthen the rupiah, the world market responded by devaluing the currency 40 percent. He claims that when his appointment as advisor to Suharto was made public, the rupiah appreciated 30 percent in a day. --DK

Illustration by Peggy Fussell
Beefing up international news coverage

Former foreign correspondent John Schidlovsky wanted to raise the international awareness of news consumers, so he sat down to create a fellowship that would enable more young journalists to work abroad.

Now, the Pew Charitable Trusts has translated his plan into reality, putting up $2.9 million for a three-year fellowship program to be launched this fall at Hopkins's Nitze School of Advanced International Studies (SAIS)--the first journalism fellowship of its kind at the school.

"There's not enough international news being reported in the American media today. [Yet] it's an obligation on the part of news organizations to keep America's viewers and readers informed about the rest of the world," says Schidlovsky, a former foreign correspondent at The Baltimore Sun and former director of The Freedom Forum Asian Center.

The Pew Fellowships in International Journalism, which will bring seven fellows each semester to SAIS to study, are geared to print, television, or radio journalists, including freelancers, who otherwise might not get such experience. "It's an opportunity to whet their appetite," Schidlovsky says.

Fellows will spend two months studying with SAIS scholars and analysts, focusing on global issues such as population growth, environmental problems, human rights abuses, or economic affairs. Afterward, they will be given a $2,500 stipend and up to five weeks to report a story overseas. Sponsors hope the stories will be picked up by the fellow's news organization. The larger goal, says Schidlovsky: to encourage journalists and news outlets to invest more time and money in international coverage. --JPC

Nonprofit business

Lee Davis wants to put the profit ideal into nonprofits.

Davis teaches an innovative course at Hopkins's Nitze School of Advanced International Studies (SAIS) that explores new ways for community outreach groups to bring in money. With funding cuts imminent and grants more competitive than ever, nonprofits might need to change their financial tunes.

"In the last couple of years, the new buzz phrase is social enterprise. Everyone is calling for self-sustaining efforts," says Davis (MA '96). "It's like using the market entrepreneur approach, the pulling-yourself-up-by-your-bootstraps sort of thing."

Last year, Davis and business partner Nicole Etchart (MA '84) launched Nonprofit Enterprise and Self-sustainability Team (NESsT), a Baltimore-based nonprofit support group that works with agencies in Eastern Europe, Latin America, the U.S., and elsewhere.

At SAIS, Davis draws on his real-world experiences in discussing alternative funding methods--some new, some tried, some born out of the moment. Health organizations working abroad, for instance, can charge market rates for health services to middle class neighborhoods in order to serve the poor for free. Or there's a group that provides van transportation to disabled Romanians but also rents the vans during off hours to businesses and private groups--charging the "rich" to provide a free service to the poor.

Another approach is similar to the recent trend of naming stadiums after sponsoring corporations. Nonprofit groups with a known reputation can lend their names to a product and earn a licensing fee (which some critics warn can lead to over-commercialization).

Davis and Grace Goodell co-teach the graduate course, titled "Sustainable Financing Strategies for Local Initiatives," as part of SAIS's Program on Social Change and Development, which Goodell directs. Students in the program must have had at least two years of service-oriented work in the Peace Corps or elsewhere.

Says Davis: "The program is a little island. Other departments at SAIS focus on macroeconomics, or the students are planning careers in investment banking." --JPC

Photo by Stephen Steele
Lending dignity in Cambodia

PHNOM PEHN, Cambodia --Patrick Capuano '86 did his job so efficiently that he eventually lost it. But that fact doesn't bother him at all. The way he sees it, that was why he was sent to this Southeast Asia nation. Since 1993, Capuano has run a vocational school and rehabilitation center for blind Cambodians. Recently, he turned the administration over to a Khmer man he has been grooming for the position.

"It's a very strange thing to work oneself out of a job. That's not the way things are done in the States. But it's a satisfying feeling to turn a project over to folks I have trained," says the 35-year-old attorney, who left a Los Angeles law firm five years ago to join Maryknoll, a U.S.-based Catholic missionary order that works in developing countries.

Capuano now works for the Cambodian Labor Organization, a local non-governmental group that monitors labor abuses and trains workers in labor rights--a sensitive subject in a country known for its political instability and violence. Three of the unions the CLO organized disbanded from fear following last summer's coup. "Just as with American unionizers in earlier days, it can be dangerous for Cambodian workers to demand that their rights under the law be respected. But some are willing to take the risks," says Capuano.

Among his pet projects is a loan program he started last year. Drawing on his monthly $200 salary, he offers small business loans to cash-starved Cambodians. The grants are small by Western standards--from $30 for a coconut salesman to build a larger cart, to $70 for a cyclo driver--but large enough to help a Cambodian save enough money to move from a squatter's camp to a permanent home. Says Capuano, "The point of helping people to work is to help build their self-worth, their dignity." --SS

Written by Joanne P. Cavanaugh, Dale Keiger, and Stephen Steele.