By Soren Ambrose
50 years is enough/AttacSeptember 4, 2002
Before the East Asian financial crisis, the IMF had a rather "teflon" reputation. It did rather little to attract press attention, and the press didn't much report on them. Critiques of the IMF, which were not uncommon, just didn't seem to stick to the IMF; they slid right off, allowing the institution to linger in the shadows.
When Thailand, Indonesia, and South Korea went into meltdown in mid-1997, that changed. It didn't happen right away, but once three of the most-respected and widely-quoted mainstream economists had had a few months to assess the consequences of the IMF's insistence on treating those economies with prescriptions seemingly designed to increase pain. Jeffrey Sachs, Harvard professor and a former fellow traveler of the IMF's in South America, Russia, and Eastern Europe, was the first to condemn the IMF's approach in East Asia. Joseph Stiglitz, then Chief Economist at the World Bank, also criticized it, but his job forced him to tone down his public statements. Paul Krugman, MIT professor, also grabbed attention when he departed from his usual neo-liberal ways to say that the IMF had gone too far in Asia. Krugman's articles at the time laid the groundwork for his regular column in the New York Times.
These three men could, with little exaggeration, be said to comprise "conventional wisdom" in the U.S. on international economics.
In the years since the East Asian crisis each of the three has made clear that they do not subscribe wholly to the comprehensive critiques of the global financial system and the IMF and World Bank made by groups like the 50 Years Is Enough Network. Stiglitz, who won the Nobel Prize for Economics in 2001, has, since leaving the Bank, been the most outspoken in his criticism, but for obscure and unfathomable reasons he insists on singling out only the IMF for his full critiques. He often is careful to distinguish between the two institutions, and praises the World Bank or argues that its role is fundamentally different from the IMF's. Like Stiglitz, Krugman and Sachs have made clear that they are not outright dissenters to the basic "neo-liberal" economics - deregulation, incentives for the wealthy and corporations, free trade. Nonetheless, the fact that each of them has significantly intensified his criticism of the IMF, with serious transgressions of basic taboos by each, suggests that after years of shouting and jeering by the global justice movement, the crowd is awakening, and admitting that indeed, Emperor IMF is wearing no clothes.
The immediate causes of this, of course, are the spectre of Argentina' s continuing redefinition of the term "economic collapse" and the apparent failure of the IMF's largest-ever loan -- $30 billion last week to Brazil -- to restore that ineffable, "investor confidence," despite little actual reason, apart from hysteria, for an economic crisis in Brazil. But the conclusions these prominent economists are drawing suggest that, at long last, the conventional wisdom is acknowledging that 20 years of imposed neo-liberalism in the Global South have been an unmitigated disaster.
We hesitate to leap on the celebrity bandwagon, allowing a few well-positioned individuals to define the current mood or "wisdom." This tendency, which the media has few qualms with, has been one of the most resilient forces in preventing alternative viewpoints from gaining the access they should. In this case, however, when the celebrities' conclusions parallel our own in significant ways, we will not be too proud to use the syndrome in the struggle to liberate the Global South from the tyranny of imperialist economics.
Rick Rowden of RESULTS has helpfully compiled the following excerpts from articles published in the last three weeks. In them we see the taboos fall: Sachs calls, however politely, for Southern countries to repudiate the debts claimed by the international financial institutions; Krugman announces his substantial doubts about the logic of neo-liberalism which he has been touting for years; and Stiglitz, who has been pummeling the IMF in his new book, Globalization and Its Discontents, goes a step further and begins contemplating the abolition of the IMF.
In addition, we have the words of George Soros, who at the time of the East Asian crisis was not yet a public commentator - being too busy amassing (and, through his philanthropy, dispersing) the billions that made him the world's most famous currency trader. Soros was blamed by many for causing the Asian financial crisis (though he too lost big during it), and now has become one of the newer pundits - the fat-cat willing to attack the system that fed him so well.
Finally, a couple articles about the South American crises are also included below, in an attempt to demonstrate how the shift in conventional wisdom is showing up in straight reporting.
For these and many other reasons, we stand poised on the brink of a new age. With the World Summit on Sustainable Development in Johannesburg - or, more specifically, the popular response to it - and with the teach-ins, debates, rallies and actions at the annual meetings of the IMF and World Bank in Washington at the end of September, we can begin to re-define the role of economics in our world and foment a genuine "values revolution" that leads us away from the obscene graft exposed by the chain of corporate scandals led off by the implosion of Enron.
-- Soren Ambrose - 50 Years Is Enough Network - Washington, DC USA
A- Joseph Stiglitz (Professor, Columbia University; author, Globalization and Its Discontents; former Chief Economist, World Bank; member of President Clinton's Council of Economic Advisers; and Recipient, Nobel Prize for Economic Science, 2001)
"I used to say that since we are going to need these institutions it is better to reform them than to start from scratch. I'm beginning to have second thoughts," he said during a recent interview on radio station WBAI, New York. [on Doug Henwood's weekly show - to hear the original, go to www.leftbusinessobserver.com]
"I'm beginning to ask 'has the credibility of the IMF been so eroded that maybe it's better to start from scratch? Is the institution so resistant to learning to change, to becoming a more democratic institution, that maybe it is time to think about creating some new institutions that really reflect today's reality, today's greater sense of democracy'.
it is really time to re-ask the question: 'should we reform or should we build from start?'"
---"Starting Over," Financial Times - August 21, 2002
B- Paul Krugman (Professor, Massachusetts Institute for Technology; columnist, New York Times)
".There is a reason the left is having a resurgence in Brazil and elsewhere in the region: We promised them a rose garden, but even before this latest crisis too many people got nothing but thorns.
"A decade ago Washington confidently assured Latin American nations that if they opened themselves to foreign goods and capital and privatized their state enterprises they would experience a great surge of economic growth. But it hasn't happened. Argentina is a catastrophe. Both Mexico and Brazil were, a few months ago, regarded as success stories, but in both countries per capita income today is only slightly higher than it was in 1980. And because inequality has increased sharply, most people are probably worse off than they were 20 years ago. Is it any wonder that the public is weary of yet more calls for austerity and market discipline?
"Why hasn't reform worked as promised? That's a difficult and disturbing question. I, too, bought into much though not all of the Washington consensus; but now it's time, as Berkeley's Brad DeLong puts it, to mark my beliefs to market. And my confidence that we've been giving good advice is way down. One has to sympathize with Latin political leaders who want to temper enthusiasm for free markets with more efforts to protect workers and the poor. What that suggests to me is that the United States should be very cautious about what it expects for its money. Pulling Brazil back from the brink doesn't mean that we are once again in a position to demand that Latin Americans do things our way. The truth is that we've lost a lot of credibility with our southern neighbors."
---"The Lost Continent," New York Times August 9, 2002
C- Jeffrey Sachs (Professor, Columbia University - just moved from Harvard Institute for International Development; Special Advisor, United Nations)
"Columbia University's Jeffrey Sachs says that the Highly-Indebted Poor Countries, known as HIPC nations, should re-channel their debt payments to more pressing domestic needs like health, elementary education and the fight against HIV/AIDS.
In his paper, published in the prestigious Brookings Papers on Economic Activity in mid-August, Sachs argues that there is no financial reason that impoverished countries should continue paying their debts, which amount to only a few billion dollars a year.
"Nor does anyone in the creditor world (including the White House) believe that those countries can service these debts without extreme human cost," Sachs adds.
"The money should instead be re-routed as grants to be spent on more demanding social needs at home. Poor countries should take the first step by demanding that all outstanding debt service payments to official creditors be reprocessed as grants for the fight against HIV/AIDS," says Sachs.
---"Jeffrey Sachs to Poor Nations: 'Forget Debt, Spend on AIDS'" by Emad Mekay. Inter Press Service August 2, 2002
D- George Soros (Currency Trader; Billionaire; Philanthropist)
"Its failure to bring the required relief indicates that there is something fundamentally wrong with the international financial system as currently constituted. Brazil's problems cannot be blamed on anything Brazil has done; the responsibility falls squarely on the international financial authorities...In recent years, the so-called Washington consensus has put its faith in the self-correcting nature of financial markets. That faith has been misplaced. Ever since capital was allowed to move around freely, one crisis has followed another and the IMF has been called on to put together ever-larger rescue packages..Market fundamentalists blame the moral hazard created by the IMF bailouts. In the aftermath of the Asian crisis, the IMF switched from bailouts to bail-ins. The true risks of investing in emerging markets were revealed, and there has been a reverse flow of capital from the periphery to the center ever since.
"The fact is that financial markets require a lender of last resort to preserve stability, and there can be no lender of last resort without a modicum of moral hazard. Every developed country has learned this lesson domestically but we have yet to learn it internationally. The current system is lopsided. It is designed to preserve the international financial markets, not the stability of periphery countries. It has rendered the risk/reward ratio of investing in emerging markets unfavorable.
"Financial markets are right to factor in a significant risk of debt reorganization or default, and once they do so it is liable to become a self- fulfilling prophecy. That is why the markets cannot be left to their own devices."
--- "Don't Blame Brazil" Financial Times; Aug 13, 2002
E- And some parting words from Stiglitz, from Globalization and Its Discontents
"It used to be that subjects such as structural adjustment loans and banana quotas were of interest to only a few. Now sixteen-year-old kids from the suburbs have strong opinions on such esoteric treaties at GATT and NAFTA. These protests have provoked an enormous amount of soul-searching from those in power....Until the protesters came along there was little hope for change and no outlets for complaint....it is the trade unionists, students, environmentalists, ordinary citizens, marching in the streets in Prague, Seattle, Washington and Genoa who have put the need for reform on the agenda of the developed world." ---Globalization and Its Discontents (Stiglitz, 2002)
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