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In the push to reform the agency, the biggest need is openness By RICARDO SALUDO April 19, 2000 Web posted at 1:30 p.m. Hong Kong time, 1:30 a.m. EDT It's a consolation of sorts. The gut-wrenching roller-coaster ride roiling world stock markets since April 14 roused only a minute minority rich enough to play the bourses. The rest of the planet lost no sleep over the plummeting Dow. At least 3 billion people, though -- half of humanity -- worried over the next meal, cough syrup for the baby, a job, a drink of water. Living below the poverty line may not be as nerve-racking as holding stock options, but it's just as real and, often, more devastating.
Someone sitting in Hong Kong can hardly offer a definitive view of how the leading multilateral lenders ought to conduct themselves in the new millennium (certainly not in 900-odd words). But any member of the global community, whom these twin institutions are supposed to serve, has a right to throw his or her two cents' worth into a debate that would affect the lives and livelihood of millions, if not billions, of people, especially the most destitute in the world. Listening to those views is indispensable to a proper evaluation and redirection of the Bank and the Fund's work. Which is why a recent article written by Joseph Stiglitz, the Bank's former chief economist, is disturbing. Published in The New Republic magazine and available online (http://www.brookings.edu/views/articles/Stiglitz/20000417.htm), "The Insider: What I Learned at the World Economic Crisis" paints a picture of arrogance and secrecy at the IMF and its minders at the U.S. Treasury Department. Stiglitz deplores an appalling lack of openness to outside oversight and opinions among policymakers in both places -- with devastating results for economies that fall under their charge, including those waylaid by the Asian Crisis. It should be noted that Stiglitz may have an ax to grind: he was reportedly eased out of the Bank for openly criticizing IMF policies, particularly its rescue strategy for Asia. On the other hand, he certainly put his job and reputation on the line in opposing the Fund, when he could have kept his mouth shut and his position secure. Now, the Stanford professor and former member of Bill Clinton's Council of Economic Advisers is speaking out despite the strong G7 support for the IMF's Crisis strategy, and the credit the agency has received for Asia's rapid recovery. Stiglitz's conviction and insider insight from his years at the Bank make his views difficult to ignore. Especially for anyone who suffered or witnessed the agony of the Asian Crisis. Like other prominent economists, including Japan's Sakakibara Eisuke and Harvard's Jeffrey Sachs, Stiglitz has long argued that the IMF's tight monetary and fiscal policies, while suited to Latin America's state profligacy, only made things worse in Asia, where it was banks, companies and consumers that had overspent on credit. With high interest rates, the Fund collapsed banks and borrowers by the hundreds, plunged entire economies in recession, and further eroded confidence in them. What's worse, the economic catastrophe tore the social fabric of Crisis countries, with the most fearsome results in Indonesia. Indeed, Stiglitz says that in late 1997 he warned the Fund about ethnic strife in the archipelago if economic conditions deteriorated. But he was ignored. Neither did his lobbying against the Fund's restrictive policies in Thailand get far. At first IMF officials argued for their strategy, Stiglitz recounts. Then they pointed upstairs at the executive committee appointed by the main donor countries, complaining of pressure to implement the harsh restrictive policies. These days there is little debate on whether the Fund got it right in Asia. There should be, if only to dispel a couple of fallacies. Stiglitz cites one: since Asia recovered, the IMF strategy must have been right. "Nonsense," writes the ex-Banker. "Every recession eventually ends. All the IMF did was to make East Asia's recessions deeper, longer and harder." The other is that compliance with Fund strictures restored confidence in the Crisis countries. In fact, the regional recovery was nowhere in sight a year into the Crisis, prompting MIT economist Paul Krugman to suggest capital controls as a desperation measure. (He later argued that following IMF strictures may have helped boost investor confidence not because they were correct, but because compliance showed that governments were serious about righting the wrongs in their economies.) Only in September 1998 did hope of recovery revive. That was when U.S. interest-rate cuts and hedge-fund troubles strengthened the yen and eased the pressure on Crisis currencies -- allowing easier monetary policies. Oh, and the Fund realized it had been too restrictive and began allowing budget deficits, as its critics had long advocated. The crucial issue here is not the correctness of IMF economic analysis and strategy, but its willingness to listen to outside parties, particularly the financially stricken nations it means to help. The same can be said of the G7 nations now pushing for major reforms: Did they bother asking the developing nations what they think of these changes? Under the U.S. proposals, which the G7 have reportedly accepted, we face the prospect of Asia, with its more than 1 billion poor, being denied access to billions of dollars in concessional loans. One hopes the IMF will reply to Stiglitz's article, rather than giving his published views the same cold shoulder he got when he was still at the Bank. Otherwise, it wouldn't speak well of its listening ability. Plainly, if it would choose to ignore a top economist like Joseph Stiglitz, one shudders to think how it would regard the pleas of impoverished, ignorant, indigent millions from some fate-forsaken place. Write to Asiaweek at mail@web.asiaweek.com
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