Is the apocalypse drawing nigh for the International Monetary Fund?

Before the East Asian financial crisis, the IMF had a rather “teflon” reputation. It did rather little to attract press attention, and the press didn’t much report on them. Critiques of the IMF, which were not uncommon, just didn’t seem to stick to the IMF; they slid right off, allowing the institution to linger in the shadows.

When Thailand, Indonesia, and South Korea went into meltdown in mid-1997, that changed. It didn’t happen right away, but once three of the most-respected and widely-quoted mainstream economists had had a few months to assess the consequences of the IMF’s insistence on treating those economies with prescriptions seemingly designed to increase pain. Jeffrey Sachs, Harvard professor (since moved to Columbia) and a former fellow traveler of the IMF’s in South America, Russia, and Eastern Europe, was the first to condemn the IMF’s approach in East Asia. Joseph Stiglitz, then Chief Economist at the World Bank, also criticized it, but his job forced him to tone down his public statements. Paul Krugman, MIT professor, also grabbed attention when he departed from his usual neo-liberal ways to say that the IMF had gone too far in Asia. Krugman’s articles at the time laid the groundwork for his regular column in the New York Times.

These three men could, with little exaggeration, be said to comprise “conventional wisdom” in the U.S. on international economics.

In the years since the East Asian crisis each of the three has made clear that they do not subscribe wholly to the comprehensive critiques of the global financial system and the IMF and World Bank made by groups like the 50 Years Is Enough Network. Stiglitz, who won the Nobel Prize for Economics in 2001, has, since leaving the Bank, been the most outspoken in his criticism, but for obscure and unfathomable reasons he insists on singling out only the IMF for his full critiques. He often is careful to distinguish between the two institutions, and praises the World Bank or argues that its role is fundamentally different from the IMF’s. Like Stiglitz, Krugman and Sachs have made clear that they are not outright dissenters to the basic “neo-liberal” economics – deregulation, incentives for the wealthy and corporations, free trade. Nonetheless, the fact that each of them has significantly intensified his criticism of the IMF, with serious transgressions of basic taboos by each, suggests that after years of shouting and jeering by the global justice movement, the crowd is awakening, and admitting that indeed, Emperor IMF is wearing no clothes.

The immediate causes of this, of course, are the spectre of Argentina’s continuing redefinition of the term “economic collapse” and the apparent failure of the IMF’s largest-ever loan -- $30 billion last month to Brazil -- to restore that ineffable, “investor confidence,” despite little actual reason, apart from hysteria, for an economic crisis in Brazil. But the conclusions these prominent economists are drawing suggest that, at long last, the conventional wisdom is acknowledging that 20 years of imposed neo-liberalism in the Global South have been an unmitigated disaster.

While we distrust the celebrity strategy -- allowing a few well-positioned individuals to define the current mood or “wisdom” -- we are not above taking the opportunity afforded by these high-profile conversions to demonstrate the emptiness of the current global economic system.

Rick Rowden of RESULTS has helpfully compiled the following excerpts from articles published in the last three weeks. In them we see the taboos fall: Sachs calls, however politely, for Southern countries to repudiate the debts claimed by the international financial institutions; Krugman announces his substantial doubts about the logic of neo-liberalism which he has been touting for years; and Stiglitz, who has been pummeling the IMF in his new book, Globalization and Its Discontents, goes a step further and begins contemplating the abolition of the IMF.

Joseph Stiglitz (Professor, Columbia University; author, Globalization and Its Discontents; former Chief Economist, World Bank; member of President Clinton’s Council of Economic Advisers; and Recipient, Nobel Prize for Economic Science, 2001)

“"I used to say that since we are going to need these institutions it is better to reform them than to start from scratch. I'm beginning to have second thoughts," he said during a recent interview on radio station WBAI, New York. [on Doug Henwood’s weekly show – to hear the original, go to www.leftbusinessobserver.com]

"I'm beginning to ask 'has the credibility of the IMF been so eroded that maybe it's better to start from scratch? Is the institution so resistant to learning to change, to becoming a more democratic institution, that maybe it is time to think about creating some new institutions that really reflect today's reality, today's greater sense of democracy.'"

---“Starting Over,” Financial Times - August 21, 2002

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Paul Krugman (Professor, Massachusetts Institute for Technology; columnist, New York Times)

“…There is a reason the left is having a resurgence in Brazil and elsewhere in the region: We promised them a rose garden, but even before this latest crisis too many people got nothing but thorns.

“A decade ago Washington confidently assured Latin American nations that if they opened themselves to foreign goods and capital and privatized their state enterprises they would experience a great surge of economic growth. But it hasn't happened. Argentina is a catastrophe. Both Mexico and Brazil were, a few months ago, regarded as success stories, but in both countries per capita income today is only slightly higher than it was in 1980. And because inequality has increased sharply, most people are probably worse off than they were 20 years ago. Is it any wonder that the public is weary of yet more calls for austerity and market discipline?

“Why hasn't reform worked as promised? That's a difficult and disturbing question. I, too, bought into much though not all of the Washington consensus; but now it's time, as Berkeley's Brad DeLong puts it, to mark my beliefs to market. And my confidence that we've been giving good advice is way down. One has to sympathize with Latin political leaders who want to temper enthusiasm for free markets with more efforts to protect workers and the poor. What that suggests to me is that the United States should be very cautious about what it expects for its money. Pulling Brazil back from the brink doesn't mean that we are once again in a position to demand that Latin Americans do things our way. The truth is that we've lost a lot of credibility with our southern neighbors.”

---“The Lost Continent,” New York Times August 9, 2002