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Goozner: Overly harsh conditions on long-term loans are inexcusable. The lender, as much if not more than the borrower, should be penalized for the failure of development projects. It's like a bank not doing due diligence on a mortgage. But harsh conditions on short-term lending in a crisis makes sense. To do otherwise is to invite what the economists call moral hazard. Who would bother to pay attention if there wasn't the fear of losing one's shirt? The great crime of the Thai, Indonesian and Korean crises bailouts was that many of the Western lenders escaped with their capital intact, while the people of those countries paid the price of IMF-imposed austerity. The lesson learned from that experience is that the private sector has to be involved in bailouts. I take that to mean companies, mutual funds and banks taking a haircut on their investments. That didn't happen, at least not in a significant way, so the criticism that they favored Western creditors over local residents is accurate.

Leyden: Nothing will replace private capital as the true modernizer of these countries. A few World Bank loans are just Band-Aids. That means that these countries need strategic loans that provide the infrastructures and the incentive to lure private capital there. These countries also need to prove that they can and will pay back on decent terms. The quicker they get to that proving point, the quicker the private money will come. Again, that's the harsh reality, but it's real.

IMF and World Bank programs are designed to shore up the economies in Third World countries. How do these organizations (and their programs) impact the U.S. economy?

Goozner: Open trading regimes and traditional macroeconomic stabilization policies in Third World countries provide open access and better guarantees for U.S. capital, and presumably that results in better profit opportunities, which can benefit U.S. stockholders. (The record on improving living standards in the countries that adopt such policies is mixed at best). When those foreign-made goods flow in, U.S. consumers benefit from lower prices. U.S. businesses and people who work in the headquarters-functions economy (Information Age workers) benefit by vastly expanded jobs and income opportunities. But there are losers, too. Lower-wage manufacturing workers in the U.S. see some of their jobs go abroad. Those who remain employed are forced into direct competition with lower-paid workers abroad, which dampens their ability to win wage gains. [Federal Reserve Bank chairman] Alan Greenspan thinks this is a good thing. It's this uneven distribution of costs and benefits that leads to the kind of protests we saw in Seattle and are seeing this week.

Hertsgaard: The main way they affect the U.S. economy is by rewarding U.S.-based global corporations that want to enter into these Third World markets with the political cover and financial-risk reduction provided by the bank and IMF.

Goozner: As the global lender of last resort, the IMF comes in after the party and cleans up the mess. The "massive crisis" staved off in the '80s was in the Western banks, whose balance sheets would have gone kablooey without Latin American restructuring. In Latin America, they refer to the '80s as the lost decade. So whose success was it?

The IMF admits it made the Asian crisis worse. That's because they came in with macroeconomic stabilization countries better suited to those running huge current account deficits. Asia, because of its manufacturing base, runs huge surpluses. The crisis was a classic panic: Western capital fled at the first signs of instability. The IMF should have performed Walter Bagehot's classic definition of the proper role of the lender of last resort in such situations: Lend liberally at penalty interest rates. Instead, the IMF came in and prescribed austerity policies.

The global economy of the 21st century will need a global lender of last resort. The only questions are what rules and what skills it must have. The current version appears to have as much wisdom as the then-16-year-old Federal Reserve Board had in 1929.

Leyden: What happened in Asia is more complicated than mismanaged IMF policies. Basically, the Asian economies needed a shock because they needed some severe structural upgrades to their financial and economic infrastructures. The boom of the '80s and early '90s, based on the old 20th century industrial economic model, masked these deep-seated problems. They needed much more financial transparency, much more corporate accountability and more openness and competition within their politics.

It sounds harsh, but they needed to take the more painful route to more fundamental structural reform. If the IMF had loosened up and lessened the pain, there may not have been the political will to make the difficult transition. A case in point is that wealthy Japan, which was not subject to IMF policies, has yet to make the reforms with any vigor and so their economy is still in a coma, a situation it's been in for 10 years now. Korea, meanwhile, which was highly dependent on IMF policies, has made many major changes, both economically and politically, and seems to be rebounding quite well.

The United States and Great Britain went through much of their form of restructuring (the developed country's model) in the brutal 1980s, and they are reaping the benefits today. Latin America also had a difficult financial restructuring in the '80s, and so they were more resilient than Asia in the '90s.

The IMF could have done better facilitating that transition. They don't even think of themselves as playing that role, let alone figuring out the best way to do it. But stability, per se, is not the goal, I would argue. Stability often preserves the status quo. The goal is meaningful restructuring that positions these countries to thrive better in the future.

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