To the Rescue
ADD THE PLIGHT of Eastern Europe to the many threats facing the world economy. Having boomed in recent years thanks to imported capital, much of it provided by Western European banks, country after country is now going bust because of the contraction of credit. This not only poses risks to global trade and growth; it also raises concerns about their future survival as democracies within the European Union. In the largest of the Eastern European states, Ukraine, a former Soviet republic that does not enjoy the political benefits of E.U. membership, the stakes are especially high. There, industrial production has plunged by almost a third since the beginning of the crisis; living standards for 46 million people are starting to collapse. The weaker and more chaotic Ukraine becomes, the likelier it is that Russia will attempt to reassert hegemony over it. A Putinized Ukraine would be a disaster for that country, Europe and the United States.
The Obama administration has announced an important step toward salvaging emerging markets, including Eastern Europe: Treasury Secretary Timothy F. Geithner's proposal to triple the International Monetary Fund's resources from their current level of about $250 billion. Of that, $100 billion would come from the United States. Congress may balk at this number; already feeling bailout fatigue with respect to U.S. banks and auto companies, many lawmakers may wonder why they need to aid other countries. The answer is that the crisis is global, and so the solution has to be global; Congress must provide funding lest economic rot spread through not only Eastern Europe but also Asia, Latin America and Africa. The IMF is the only institution capable of doing the job.
Other countries must do their share. Some already have: Mr. Geithner was following the example set by Japan, which is suffering a steeper downturn than the United States but still found $100 billion to spare. The Obama administration correctly seeks greater contributions from cash-rich China and Saudi Arabia. If modifications to IMF governance are necessary to secure their participation, that should be considered. The disappointment so far is the European Union, whose Western European members are not eager to bail out the East. But it will be harder for them to delay now that the Obama administration has stepped up. Indeed, Western Europe is likely to come around eventually, if only to prevent the collapse of the European Union's Eastern half from turning into a collapse of the alliance itself.
For Ukraine, however, the United States will have to lead. That includes encouraging Ukraine's leaders to control the political squabbling between Prime Minister Yulia Tymoshenko and President Viktor Yushchenko that so far has thwarted the formulation of a new economic program necessary to secure international aid. Consequently, the IMF recently withheld the second installment of a planned $16.4 billion loan. Washington needs not only to supply money but also to push for political cohesion and responsibility among the politicians in Kiev. All the IMF money in the world can't save them unless they can agree on how to help themselves.