IMF Policies Admitted Wrong

March 19, 2003 6:59 AM

Oops! IMF Admits Failed Policies
International financial integration should also help countries to reduce economic volatility, the study said, but in reality this has not happened.

"Indeed, the process of capital account liberalization appears to have been accompanied in some cases by increased vulnerability to crises," the report said.

"Globalization has heightened these risks since cross-country financial linkages amplify the effects of various shocks and transmit them more quickly across national borders."

In the last 10 years, developing countries from Thailand and Russia to Argentina, have seen their economies collapse, even though many of them were trying to follow IMF-prescribed open market policies.

So does this mean corporate facism harms the world's poor?
posted by nofundy (25 comments total)

So does this mean corporate facism harms the world's poor?

Red meat for the fundies!
posted by Bag Man at 7:03 AM on March 19, 2003

The world's poor? Oh no, not them again...
posted by klaatu at 7:06 AM on March 19, 2003

"So does this mean corporate facism harms the world's poor?"

March winner of the MetaFilter Hyperbole contest.
posted by y6y6y6 at 7:10 AM on March 19, 2003

"Fascism: 1. A philosophy or system of government that advocates or exercises a dictatorship of the extreme right, typically through the merging of state and business leadership, together with an ideology of bellierent nationalism." - From The American Heritage Dictionary of the English Language

I'd say that critics of the IMF and corporate led globalization might want to call this process "MetaFascism". Mere Fascism - or proto-fascism ( by the above definition ) is what seems to be now emerging in the USA.
posted by troutfishing at 7:34 AM on March 19, 2003

No nofundy, IMF's failure is partly due to the fact that throwing money at a problem only covers up the fact that most of these nations are uneducated. If you instead setup programs designed to increase awareness, perhaps they wouldn't be so quick to accept loans. Something along the lines of "college students are inexperienced when handling money and therefore spend well beyond their means, unable to recover from their debts until their 30's". A crude example, but applicable. These investment houses could have a conscience, but no one is allowed to force them to be ethical. That stands in the way of the free market.

Mere Fascism - or proto-fascism ( by the above definition ) is what seems to be now emerging in the USA.

Duck and cover! The fascists are among us...or perhaps liberals have finallly understood name calling as well as their 50's conservative counterparts.
posted by BlueTrain at 7:43 AM on March 19, 2003

Oops - I wass typing to fassdt!@ - That 2nd-to-last word in the definition is "belligerent".
posted by troutfishing at 7:44 AM on March 19, 2003

So does this mean corporate facism harms the world's poor?

opening economic borders=corporate fascism?

Hellooooo econ 101!
posted by goethean at 8:03 AM on March 19, 2003

Haven't these problems been highlighted before. Stiglitz's Globalization and its Discontents springs to mind as the most obvious. To sum up, this suggested that the problem with IMF funding has been trying to fit all economies to a one-size-fits-all model with scant regard for local institutional set-ups and the specific needs of the countries it has been dealing with.

The FPP isn't interesting for the fact that it suggests that the IMF hasn't been successful in achieving many of the things it was aiming to achieve, which is old news, it is quite interesting that they might admit this, but more interesting for me is purely the suggestion from a major institution of this type is that globalisation might not be the panacea for poverty that the heads of most the developed world, MNC's, etc have continually pushed.
posted by biffa at 8:10 AM on March 19, 2003

Goethean, can you clarify whether you are agreeing or disagreeing with the previous post?
posted by biffa at 8:11 AM on March 19, 2003

"Capitalists" (not corporate facists) is the correct term. Glad to see a large institution recognize its failure that is a huge step.
posted by stbalbach at 8:18 AM on March 19, 2003

biffa, I was ripping on the FPP.

I actually do think that in the long run, opening economic borders does help the world's poor. But the short-run "speed bumps" can be devastating. Changes must be deliberately slowed to avoid economic disasters.
posted by goethean at 8:40 AM on March 19, 2003

the link speaks for itself:

The paper concludes that countries must carefully balance integration in the world economy with strong economic policies and the building of strong institutions, including banks and regulatory systems.

"The evidence presented in this paper suggests that financial integration should be approached cautiously, with good institutions and macroeconomic frameworks viewed as important," the IMF said.
posted by probablysteve at 8:55 AM on March 19, 2003

"Capitalists" (not corporate facists) is the correct term. Glad to see a large institution recognize its failure that is a huge step.

I'd say the IMF is more like a bunch of "Classic Liberals." The IMF suggests that an open market economic with regulation is best way to go, yes fascists indeed. The article does far beyond suggesting that IMF has merely recognized failure in its policy; the article suggests the IMF is strongly considering reforming its approach to adapt an approach that embraces, or least tires to conform, to the unique circumstances of each country. It's a level of fascism that Mussolini would be proud of.

Even the fundies must admit that that's not so fundamentalist at all.
posted by Bag Man at 9:02 AM on March 19, 2003

I disagree with the headline of the story regarding "globalization" not working. Globalization is a fact, it is happening, it will not stop. What very evidently does not work, and what I think this story relates to, is corporate globalization, that is, the form of globalization pushed by the U.S.-controlled IMF in which financial markets in developing countries are restructured to faciliate the making of quick money by multinational corporations. I think it's true that corporate investment will be one of the most significant ways that these small economies are going to develop, but there need to be social safeguards against the inevitable financial shock of market liberalization, and more importantly there needs to be genuine political modernization in these countries so that they can regulate their own economies correctly.

from the article:
"Theoretical models" show that financial integration can increase economic growth in developing countries, the research found, but in practice it is difficult to prove this link.

"In other words, if financial integration has a positive effect on growth, there is as yet no clear and robust empirical proof that the effect is quantitatively significant," the new report said.

Translation: Much as we might have wanted to believe it with all our hearts, the earth is not, in fact, flat. Good to see that reality is breaking through the dogma.

p.s.
nofundy, this is a really interesting issue and there was no need for the "corporate fascism" remark on your FPP.
posted by Ty Webb at 9:04 AM on March 19, 2003

opening economic borders=corporate fascism?

In some ways, yes. Most successful capitalist countries (Japan, Korea, the US, Britain) got their start by keeping closed economies that allowed their industries to develop before they started becoming global competitors. Now the corporations that grew up in these countries want access to the markets of the emerging economies before the emerging countries get the chance to do the same thing.

That said, this is generally not the main complaint of the IMF. Countries that follow the dictates of the IMF in exchange for aid are told that they must massively cut their domestic pension and welfare budgets, allow their currencies to float, sell their national assets to private individuals or foreign investors, and release all of their price controls. This is not to say that this isn't a good idea in general, but for countries with populations that are on a fixed income (eg, pensioners), it hurts a lot. It causes a lot of wealth that was built up over the old regime to evaporate. Unless you had "nothing to lose" in the first place the situation worked against you.

This was an economic fad from the late 80s and early 90s that prescribed "shock treatment" for former communist countries in their transition to capitalism. As the Russian dissident Alexander Solzhenitsyn said prophetically, "You don't use shock treatment on your mother."
posted by deanc at 9:04 AM on March 19, 2003

These investment houses could have a conscience, but no one is allowed to force them to be ethical. That stands in the way of the free market.

This attitude confuses me, why aren't ethics a part of business? Is the Free Market more important then morality?
posted by elwoodwiles at 9:21 AM on March 19, 2003

Thanks for the clarification Goethean but can you back up the belief with an argument - that would seem to be fundamental to the role of the IMF and to its failure as in the FPP.

"Classic Liberals"

Well the IMF can be seen as essentially Keynesian in its origins, whic might suggest liberalism (but then surely US DOD funding is liberalism in action too), however, it now leans much more heavily towards market fundamentalism. It would appear to see its role as investing in assisting nations to develop infrastructure which allows the market to operate efficiently, with the aim that this will make every one rich and happy. (Or at least will make Western companies rich, some developing country interests richer and the poor a bit better off) They are now talking about changing how they will now approach this, rather than whether it will work or not to help out those in poverty.

no one is allowed to force them to be ethical

National law seems a fine place to start, with efforts at international regulation to follow. Consumer action if you're one of them anti-government types.
posted by biffa at 9:34 AM on March 19, 2003

biffa,

You want me to make an argument for the opening of economic borders?

There have been a host of books written on the non-zero-sum-ness of global trade. It's sort of one of the first principles of macroeconomics.
posted by goethean at 9:43 AM on March 19, 2003

Forbes magazine (a.k.a. the "Capitalist Tool") regularly bashes IMF policies as anti-growth and typically consisting of currency devaluations and tax increases. For the benefit of us non-econ majors, is this characterization way off, or is there a new definition of "free market capitalism" that I'm unaware of?
posted by ZenMasterThis at 10:04 AM on March 19, 2003

No Goethean I want you to make an argument that opening economic borders helps the poor, which is what your previous post said you believed.
posted by biffa at 10:09 AM on March 19, 2003

Well the IMF can be seen as essentially Keynesian in its origins, whic might suggest liberalism (but then surely US DOD funding is liberalism in action too), however, it now leans much more heavily towards market fundamentalism.

A belief in unregulated free markets is the corner stone of Classic Liberalism. A liberal, with a small "l" (or a modern Liberal), is a person who tends to favor more market regulation. The IMF tends to support the "free market" and "free trade," which exemplifies Classic Liberalism. That's the only point I wanted to make. While the IMF may be Keynesian in some respects, their bent toward a free trade as a goal in and of itself seems to make the IMF relatively Classically Liberal. This article suggests the IMF is moving away from their "fundamentalist" free market approaches and may be willing to take a more balanced approach. Why? Because facts seem to support the idea that an integrated approach may work better. Is it "fundamentalist" to base a worldview and subsequent conduct on empirical study? I guess some here think so; I don’t. The substance of the article is quite different for what the thread advertised.
posted by Bag Man at 10:48 AM on March 19, 2003

Yup, IMF used to be keynesian, its certainly hasn't been for a while.
The article seems to say that the IMF is moving from aiming for a fundamentalist free market approach or really that its moving from a one-size-fits-all approach to a more made-to-measure approach. I think the gist seemed to be 'what we're doing isn't working and we're going to change it, but really we have no clue as to what we're going to change it too'. There's no implication of letting up on the free market side of things. Changing it to work better is still a good thing as it might at least help some people out, but I agree, it doesn't have a lot to do with what was implied in the thread regarding globalisation and the poor being screwed.
posted by biffa at 11:12 AM on March 19, 2003

Here's a link to the paper itself:
'Effects of Financial Globalisation on Developing Countries: Some Empirical Evidence' by Eswar Prasad, Kenneth Rogoff, Shang-Jin Wei and M Ayhan Kose. It's a 589KB PDF file.
posted by Owen Boswarva at 2:02 PM on March 19, 2003

How can you tell a post is from a fundamentalist? Because the post doesn't even understand the article, nor the research paper. This paper says absolutely nothing about the benefits of international trade on economic growth. In fact, on page 9:

"This points to an interesting contrast between financial openness (what this paper discusses) and trade openness (which is does not) since an overwhelming majority of research papers have found effect of the latter on economic growth" (italics mine).

This paper is discussing things like risk sharing by holding foreign currency as a federal reserve and that type of macroeconomic policy. It is true that the IMF has supported this type of policy, despite many critics including many economists, and I'm glad that the IMF is doing its best to change for the better.

As far as the effect of trade on growth, that's been proven more times than one can count: Put it this way: Until 1750, there was basically no real economic growth (far less than 1%/yr globally) in the world, based on Solow's TFP method. Without trade in postcolonial Africa, Asia and Latin America, this would be still be the case.

Again, this paper says nothing about the effects of trade (what the far left calls corporate globalization) other than that nearly every economist in the world accepts it as positively beneficial.
posted by Kevs at 3:47 PM on March 19, 2003

Kevs, who in this thread has denied the benefits of trade?
posted by Ty Webb at 4:03 PM on March 19, 2003