By Anthony Rowley
Tokyo Correspondent
The Singapore Business TimesOctober 13, 1998 Neither Camdessus nor Wolfensohn are the men to lead independent institutions that do not favour private capital.
Managing director Michel Camdessus chided journalists at the close of the International Monetary Fund (IMF) and World Bank annual meetings last week: "You came here expecting to see the Titanic and what you got instead was Great Expectations." He implied that the press had come to Washington hoping to hear of financial Armageddon but instead had been disappointed by a less newsworthy message of hope and renewal for the system. But Mr Camdessus fooled no one except perhaps himself.
The truth is that the capital market-led development paradigm which the IMF has endorsed under his stewardship, and which its sister institution the World Bank has actively promoted under its president James Wolfensohn, is crumbling around both men's ears. It would not be surprising if neither of the two men survives its collapse in their present positions.
The IMF and the World Bank have risked embracing their own destruction by endorsing what Japan's financial Vice-Minister for International Affairs Eisuke Sakakibara lambasted last year as the "blind application of a universal model of capitalistic fundamentalism" by Washington and by multinational bureaucracies. It bears repeating what Mr Sakakibara said at the 1997 Asian Development Bank annual meeting. Asia, he declared was "resonating with Washington-generated market expectations".
In words that scandalised many of his Western listeners, Mr Sakakibara talked of the latter-day "colonisation" of Asia via the promotion of neo-classical economic paradigms. "Euphoric expectations have been generated by inflows of foreign capital which are market oriented and sensitive to short-term changes," he charged. That was in May, a full three months before the Thai crisis erupted and went on to spread its contagion around the globe.
Today, Mr Sakakibara's words resonate like a prophecy of doom and yet still Messrs Camdessus and Wolfensohn cling to the notion that little has changed and that the Washington consensus remains more or less intact. The IMF head has allowed himself to believe that tinkering with the "international financial architecture" can shore up the system, while the World Bank president seems to think that a preoccupation with welfare issues can substitute for a sound development policy.
Both men deluded themselves into thinking they could ride the tiger of huge private capital flows into developing countries and escape unscathed when it turned upon them. Their resources are puny in relation to the size of the beast and yet Mr Camdessus still appears to believe he can tame it by regulation. Mr Wolfensohn occupies himself with tidying up after the carnage by talking about social "safety nets" instead of challenging the flawed orthodoxy that is responsible for it.
Intimations of reality did creep into the World Bank president's remarks at the annual meetings. He conceded the danger of a "huge liquidity shortage" arising in the world's emerging markets now that the tide of private capital has ebbed to the tune of some US$140 billion (S$230.7 billion) a year and is every day drying up further.
What, he wondered aloud, will happen when many of the still huge loans to these markets need to be renewed in about a year from now? Still, Mr Wolfensohn shows no sign of being ready to challenge the ideas espoused by lieutenants of his friend and patron US President Bill Clinton (namely US Treasury Secretary Robert Rubin and his deputy Lawrence Summers) that the markets are the best arbiters of development priorities.
He probably fears that it is more than his job is worth to do that -- and yet someone has to expose the fact that the proverbial emperor has no clothes and that capital market imperialism is just not working. That someone is highly unlikely to be Michel Camdessus. He has signed on the IMF to the belief by its effective political masters in Washington that surface reforms to the international financial architecture are all that is needed to prevent the flawed structure from crumbling. All the talk now about improved "surveillance" and the need for "transparency" on the part of emerging market debtors and creditors is empty. And the IMF's acknowledgement that capital controls may be justified in certain circumstances is a classic case of locking the stable door after the horse has bolted.
The real architectural reforms needed now are much more fundamental. A new and strengthened institutional structure is needed to intermediate funds from capital surplus to capital deficit countries, since the 1990s experiment with rapid and ideologically driven interfacing of capital markets with the developing world has proved to be very dangerous.
The IMF and the World Bank are the most logical intermediaries -- but under new management. The IMF must get back to objectively policing the international monetary system without unduly favouring private capital; and the World Bank must start acting like the long-term development-funding institution it was constituted as, rather than meekly relinquishing that task to providers of private capital who have proved incapable of taking more than a short-term and bottom line-oriented view of development.
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