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The
new guardians of global finance. Credit: Jim West
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The Insider
By
David Moberg
While pundits were quick to attack shortcomings in the international financial savvy of protesters at the April demonstrations against the International Monetary Fund and the World Bank, it is harder for them to dismiss the credentials of critic Joseph Stiglitz.
Stiglitz, who recently resigned as chief economist of the bank, is a distinguished academic and former chief of President Clinton's Council of Economic Advisers. He is pleased with the success of the protests in getting across a basic message. "What is at issue is a question of values," Stiglitz told In These Times, "of democratic processes, the environment, workers - and how partly because of the absence of democratic process, decisions were made that jeopardized the livelihoods, and even the lives, of many of the world's poor."
Stiglitz, chief economist from 1996 until last November, often got into trouble for his willingness to disrupt the "Washington consensus." Although Stiglitz worked to change World Bank practices from the inside, he was hampered by the power of the IMF to define the broad economic framework that the World Bank functioned within and by the enormous pressure to maintain a unified voice among global financial institutions. So last year he decided that he had to leave to express himself more freely.
He joins a growing list of supporters for deep reform of the institutions. Though students, environmentalists, union members and a variety of non-governmental advocates for developing countries were the mainstays of the Washington protests, leaders of the G-77 group of developing countries applauded the demonstrations from their meeting in Havana. And just before the spring meetings, a largely conservative congressional advisory commission called for radical changes at the IMF and World Bank.
Stiglitz is particularly unhappy with how the IMF and World Bank have responded to these calls for change. "There was certainly no engagement on the broad, fundamental question about democratic process - and whether there was a balance of representation in the decision - making process of financial interests versus workers," Stiglitz says. "What's remarkable, I see no indication of a grasp of that even as an issue."
The real problem, Stiglitz says, is that both institutions are primarily accountable to finance ministries, which are closely tied to private financial markets, central banks and global corporations. "Financial markets tend to be very secretive," Stiglitz says. "Central banks aren't democratically accountable in most countries. The IMF agenda has been to make them more independent and less democratically accountable. You can debate the economic virtue of that policy, but it affects the culture, and I would argue that for most countries it hasn't [improved] the variables that matter, like growth and stability."
The biggest mistake the IMF made in recent years was its handling of the 1997 Asian crisis. First, the IMF pressured rapidly developing Asian countries like Thailand and Korea to eliminate most controls over the flow of capital. Speculative money flowed in, often distorting the economy, then suddenly rushed out on rumors of economic problems, plunging countries into crisis. "There never was economic evidence in favor of capital market liberalization," Stiglitz says. "There still isn't. It increases risk and doesn't increase growth. ... There isn't the intellectual basis that you would have thought required for a major change in international rules. It was all based on ideology."
When the crisis hit, the IMF insisted on policies that were inappropriate for countries that often had thriving economies and responsible budgets, pushing them deeper into crisis. "If you close 16 banks and announce that other banks may be closing, then you shouldn't seem surprised when there's a run on the banks," Stiglitz says, referring to IMF policies in Indonesia. "If you have an economy going into depression, with people losing jobs and wages falling, and then food and fuel subsidies to the poor are cut, you shouldn't be surprised there's a riot."
Part of the problem is that the interests of poor countries differ from those of central bankers and private money managers from rich countries. "From their point of view, the first priority was not maintaining the Thai gross domestic product at the highest level, as it would be if I were the chief economist of Thailand," Stiglitz says. "They put more priority on creditors getting repaid." Contracts with workers were broken with impunity, he observes, but despite the centrality of bankruptcy in modern capitalism, the IMF considered every debt to foreign lenders inviolable.
The problems of the IMF and World Bank also reflect deeper problems of the economics profession. "There are dimensions [of the economy] that we [economists] forgot about before, like insecurity and volatility, which are related to the increase in poverty," Stiglitz says. "A more volatile situation means that more people go below the poverty line. Many factors are irreversible, which people forget. It's much easier to destroy firms than to create new firms. If a child is malnourished and brain damaged, feeding him later doesn't reverse that. If schooling is interrupted, the probability of education being restored is low."
For many years, the IMF - with support from the World Bank - has insisted that the solution to global poverty is its draconian program of "structural adjustment." But "many developing countries need assistance because they're poor," Stiglitz says. "Structural adjustment suggests they're out of kilter, that they need a nose job. My point is they're poor and need more money to be less poor. If the IMF gets out of lending to developing countries, then the World Bank will be freer to move ahead in this direction."
But the fundamental reform needed to manage the global economy is more open and democratic debate, Stiglitz argues. "If there were more opportunity for discussion, there would be more scrutiny," he says. "We're getting more discussion today, but very little inside the institutions."
Stiglitz fears that IMF and World Bank responses to criticism will be superficial without some fundamental restructuring of who has a voice in their decisions. "The institutions themselves, in the process of fighting for their survival, will pay lip service to change while drawing up the bridge."
David Moberg is a senior editor of In These Times.
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In These Times ©
2000
Vol. 24, No. 13 |