Global Policy Forum

By Ibad Aslam

Washington (IPS) - Washington policy-makers have coddled investors at the expense of workers in their response to the Asian financial crisis - so says Joseph Stiglitz, senior vice president and chief economist at the World Bank.

Since joining the global lender three years ago, Stiglitz has been the most visible internal critic of efforts by the Bank, International Monetary Fund (IMF) and US Treasury efforts to contain the financial blaze as it swept the region in 1997-98 and then to repair the damage done. The former top economic adviser to US President Bill Clinton, in a weekend speech to the American Economics Association in the northeast US city of Boston, also assailed Washington's pursuit of free capital movement.

"Capital market liberalisation has not only not brought people the prosperity they were promised, but it has also brought these crises, with wages falling 20 or 30 percent and unemployment going up by a factor of two, three, four or 10," declared Stiglitz, who leaves the Bank later this month.

When Asian governments were forced to accept financial relief coordinated by the IMF, Washington imposed conditions that clearly targeted ordinary workers, Stiglitz asserted. "A standard message was to increase labour market flexibility, and the not-so-subtle subtext was to lower wages and lay off workers," he said.

"In East Asia, it was reckless lending by international banks and other financial institutions, combined with reckless borrowing by domestic financial institutions...which may have precipitated the crisis. But the costs, in terms of soaring unemployment and plummeting wages, were borne by the workers," Stiglitz said in remarks which won a standing ovation from fellow economists.

International lenders met the crisis by encouraging countries to erect social safety nets to catch those laid off in the post-crisis recessions, he acknowledged. However, "there is no safety net that can fully replace the security provided by an economy running at full employment, no welfare system will ever restore the dignity that comes from work."

Countries must "work not only to put in place policies that prevent crises and minimise their magnitude and adverse consequences but also to respond to these crises in ways that maintain as high a level of employment as possible," he urged.

Stiglitz joined the World Bank in February 1997 after a career in academia and as chairman of President Clinton's Council of Economic Advisers. He launched several searing attacks on the IMF and, by extension, the US Treasury-led "Washington Consensus" on economic liberalisation and global market integration. His positions won praise from many outsiders and even some dissidents within the Bank, but caused tension with higher-ups at the global lending agency, the IMF and the US government.

Nevertheless, insiders have said repeatedly, his open acts of dissent have served an important political purpose, helping the Bank to distance itself from its Bretton Woods sibling in the public eye even as it worked with the IMF to assemble more than 100 billion dollars in financial bail-outs for Asia.

This was considered necessary at a time when Asians were hurling brickbats at the Bank for marching in lockstep with the IMF, and other shareholder governments were accusing the agency of playing second fiddle to the Fund with their money. The Bank and IMF continue to push contentious reforms in investment, banking and corporate governance in South Korea, Indonesia and Thailand - the countries at the centre of the regional crisis.

The agencies have demanded that countries open their domestic industries and financial markets to foreign ownership and management, and abandon employment protection in favour of insurance schemes designed to cushion the fall of workers pushed out of their jobs. South Korea, for example, has had to promise to let foreigners buy land, launch hostile takeovers of domestic firms, and increase their holdings in public companies from the previous cap of 10 percent.

Such concessions are necessary to attract overseas investment, according to the international financial institutions. But it has been a troubling experience for Asians to see ambitious ventures sold off to foreigners.

Additionally, politicians, intellectuals and labour leaders have noted that new unemployment insurance schemes offer limited protection and in any event, will serve only future generations of unemployed workers.

Almost all of the nearly 7.5 billion dollars the World Bank has lent to Korea in the past two fiscal years has been tied to financial, banking and corporate restructuring as well as measures to ensure labour market flexibility, according to the lending agency's own figures. In Thailand's case, the proportion is roughly two-thirds of a billion dollars in World Bank loans. Indonesia's figures are the most difficult to discern because the country's international bail-out has been interrupted and reconfigured a number of times.

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