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How I was ambushed by the IMF for daring to challenge its mistakes
. Joseph Stiglitz. July 08, 2002
Globalisation is one of the major issues of our time. There are unquestioned benefits: economies have grown because of increases in international trade, while people even in the poorest countries live longer because of medical advances and improved incomes. But while some countries, such as those of East Asia, have taken advantage of globalisation, others have not.
In my recent book, Globalisation and its Discontents, I lay out some of the problems: development failures in Africa, mistakes made during the transition from communism to a market economy in Russia, economic crises resulting in part from mismanaged capital market liberalisation and an international trade regime which is unfair to developing countries.
I blamed the International Monetary Fund for many of the failures and I said it has lost sight of its original mission. It has pushed free market solutions — market fundamentalism — even in countries where a more balanced approach would have been best. Much of what I said is now commonly accepted; few would argue that the international trade regime is fair.
One of my main criticisms is that much of what the IMF does is cloaked in a secrecy. Matters such as interest rates and monetary policy that are widely debated in Western democracies are discussed privately between IMF representatives, central bank governors, and the ministry of finance. Trade unions and representatives of civil society are not consulted.
I knew my book would be controversial and that the IMF and multinational financial and corporate interests would not like it. But the overall favourable reviews, combined with it quickly becoming a bestseller in several countries, suggested I had struck a resonant chord. In Britain, however, I have been strongly censured by The Economist, first in a book review and then in a piece that repeated an attack on me made by the IMF’s head of research on June 27 — an attack that resembled The Economist’s review.
The Economist is a wonderful magazine in many ways but it is conservative politically and not known for its balanced writing. This is part of its appeal. It takes strong views and sticks to them. In my case, its unnamed writers decided early on what line they would take. No one from the magazine called to get my side of what had happened on June 27 at a launch of my book at the World Bank Book Store in Washington.
The Bank, as a courtesy, had invited the IMF to send a representative and the Fund expressed an interest in having a substantive discussion of the issues raised. I welcomed this; when I had worked at the Bank I tried repeatedly to engage the IMF in serious discussion but was rebuffed.
What happened instead was an ambush: Ken Rogoff, the head of research, launched a surprise attack on me, labelling prescriptions I had advocated as snake oil. Though the IMF had announced the meeting was off the record, the speech was not only passed on to the press, but posted on its website.
It is not surprising that my criticism angered the IMF. But indulging in character assassination is not a way to deal with my critique. Evidently it decided it was better to shoot the messenger rather than deal with the message.
For our democracies to work we need more than freedom of speech and the press: we have the right to know what government agencies are doing. There must be individuals and think-tanks able and willing to analyse critically alternative proposals, to speak out forcefully, without fear of intimidation, whether it be personal vilification or the loss of employment.
There were plenty of substantive issues we could have debated:
Raising interest rates to support the exchange rate makes sense in some circumstances, but in East Asia, where firms were highly indebted, it led to massive bankruptcies and weakened the economies, and the exchange rate, further.
In the East Asia crisis, I argued for greater reliance on bankruptcies and standstills. The IMF is at last turning its attention in that direction, but one cannot have a major creditor (the IMF) playing a pivotal role in managing the bankruptcy process.
Developing countries often need capital; but opening one’s doors to speculative capital flows does not enhance growth.
There is little evidence that public discussion of economic policies leads to instability; indeed, such discussions may lead to better solutions.
By its recent behaviour, the IMF missed an opportunity to discuss important issues and sent a message that attacking one’s critics is more important than engaging them. This is not a good example for nascent democracies anywhere.
The author is a Nobel laureate and former chief economist at the World Bank