---------- Forwarded message ----------
Date: Thu, 3 Dec 1998 12:27:37 -0500
From: Robert Weissman <[EMAIL PROTECTED]>
To: Multiple recipients of list STOP-IMF <[EMAIL PROTECTED]>
Subject: WP: World Bank Turns Up Criticism Of the IMF (fwd)
World Bank Turns Up Criticism Of the IMF
By Paul Blustein
Washington Post Staff Writer
Thursday, December 3, 1998; Page E01
The World Bank fired an extraordinary barrage of criticism yesterday at its
sister institution, the International Monetary Fund, denouncing as misguided
the high interest rates and other painful austerity policies the IMF
required
several Asian countries to pursue in exchange for international bailouts.
In a report and in public comments at a news conference, World Bank
officials sharply escalated a long-festering dispute with the IMF that has
flared periodically since the advent of the Asian financial crisis. The
World
Bank's dissension has irritated and embarrassed the IMF and its
supporters in the Clinton administration because it has bolstered criticism
from many private analysts of the IMF's performance in managing the
crisis, and aroused fears among some fund officials that their authority is
being undermined.
Bank officials refrained from mentioning the IMF by name. But there was
no mistaking their references to the policies favored by the fund, which is
headquartered across the street from the World Bank in downtown
Washington and was created at the same 1944 conference that led to the
founding of the bank. The two institutions usually operate in tandem, with
the World Bank lending for long-term development projects and the IMF
providing short-term loans to tide over countries experiencing economic
crunches.
Joseph E. Stiglitz, the bank's chief economist, was exceptionally scathing
in
assessing the results of the high interest rate policies adopted at IMF
insistence by Thailand, South Korea and other Asian nations after investors
began fleeing those economies in the summer and fall of last year. High
interest rates were supposed to restore investor confidence and stop the
plunge in those nations' currencies by offering returns attractive enough to
lure investors back in.
"In fact, what one wound up with was both" suffocatingly high rates and
collapsing currencies, Stiglitz said, because investors apparently concluded
that the Asian economies would fall into deep recessions and the nations
suffer social unrest.
His arguments echoed a bank report issued yesterday, which contained a
chart showing "no simple connection" between higher rates and stronger
currencies in Southeast Asia over the past 1 1/2 years.
Citing the case of Thailand, Stiglitz contended that once the panic was
underway, it made little sense to increase interest rates to prevent an
additional decline in the Thai currency, the baht. Real estate companies
"were dead" because of a sudden collapse in property prices, "and further
devaluation would not have made them deader," he said. Exporters,
meanwhile, might be hurt to some extent by a declining baht, which made
their foreign debts harder to repay, but they would also be helped because
their products would become more competitive, Stiglitz said.
"You ask the question, 'Who are you protecting?' " by raising rates,
Stiglitz
said. "You're protecting firms that have gambled" that the currency would
remain stable. "Who is paying the price? . . . Workers who are going to be
put out of jobs."
The IMF declined to respond to the World Bank's latest broadside, just as
it did in early October when the bank's president, James D. Wolfensohn,
delivered a speech laden with implicit criticism that IMF-led rescues were
insensitive to the needs of the poor. But the fund has vigorously defended
high interest rates as a necessary evil in many cases to keep currency
declines from becoming ruinous. In the IMF's view, the approach has
worked.
At a news conference in late September, for example, Michael Mussa, the
IMF's chief economist, contended that South Korea and Thailand -- after
initially balking at raising interest rates -- had restored investor
confidence
by driving rates sharply higher and holding them there for several months.
Both economies, which are showing signs of bottoming out, have
eventually been able to lower rates, he said. "Those who argue that
monetary policy should have been eased rather than tightened in those
economies [when the crisis erupted] are smoking something that is not
entirely legal," he added.
The bank's report was not entirely devoted to criticism of the IMF. The
main section contained a forecast that global economic growth will slow by
more than half in 1998, to a 1.8 percent annual rate, followed by a 1.9
percent rate in 1999. There also is a "substantial risk" of a global
recession,
the report warned, if Japan should fail to revive its economy, or if stock
markets should crash in the United States and Europe, or if funds to
emerging markets should dry up completely.
In the report and at the news conference bank officials also strongly
questioned the value of unfettered capital flows across international
borders and urged developing countries to impose controls over inflows of
short-term funds from abroad.
The World Bank's latest statements on this issue are also likely to annoy
the IMF, which has taken the lead in recent years in prodding developing
countries to open their capital markets. The fund has grudgingly accepted
that some countries may want to follow Chile in taxing short-term inflows
to discourage "hot" money that can be withdrawn in a flash. But IMF
officials have argued that the value of such controls is questionable.
) Copyright 1998 The Washington Post Company
