The following two articles outline one of the most bitter and high-profile feuds in economic policy-making circles. An interesting read about how one of the most celebrated economists of our times, Joseph Stiglitz takes on the IMF.
Stiglitz vs The Bloodsuckers IMF's four steps to damnation. by Gregory Palast How crises, failures, and suffering finally drove a Presidential adviser to the wrong side of the barricades The Observer (UK) \ Sunday April 29, 2001 http://www.ratical.org/co-globalize/Stiglitz.html It was like a scene out of Le Carr�: the brilliant agent comes in from the cold and, in hours of debriefing, empties his memory of horrors committed in the name of an ideology gone rotten. But this was a far bigger catch than some used-up Cold War spy. The former apparatchik was Joseph Stiglitz, ex-chief economist of the World Bank. The new world economic order was his theory come to life. He was in Washington for the big confab of the World Bank and International Monetary Fund. But instead of chairing meetings of ministers and central bankers, he was outside the police cordons. The World Bank fired Stiglitz two years ago. He was not allowed a quiet retirement: he was excommunicated purely for expressing mild dissent from globalisation World Bank-style. Here in Washington we conducted exclusive interviews with Stiglitz, for The Observer and Newsnight, about the inside workings of the IMF, the World Bank, and the bank's 51% owner, the US Treasury. [Who effectively controls the US Treasury? The Federal Reserve Corporation? And who owns the Fed? See: http://www.transaction.net/money/national for some interesting leads.] And here, from sources unnamable (not Stiglitz), we obtained a cache of documents marked, `confidential' and `restricted'. Stiglitz helped translate one, a `country assistance strategy'. There's an assistance strategy for every poorer nation, designed, says the World Bank, after careful in-country investigation. But according to insider Stiglitz, the Bank's `investigation' involves little more than close inspection of five-star hotels. It concludes with a meeting with a begging finance minister, who is handed a `restructuring agreement' pre-drafted for `voluntary' signature. Each nation's economy is analysed, says Stiglitz, then the Bank hands every minister the same four-step programme. Step One is privatisation. Stiglitz said that rather than objecting to the sell-offs of state industries, some politicians -- using the World Bank's demands to silence local critics -- happily flogged their electricity and water companies. `You could see their eyes widen' at the possibility of commissions for shaving a few billion off the sale price. And the US government knew it, charges Stiglitz, at least in the case of the biggest privatisation of all, the 1995 Russian sell-off. `The US Treasury view was: "This was great, as we wanted Yeltsin re-elected. We DON'T CARE if it's a corrupt election."' Stiglitz cannot simply be dismissed as a conspiracy nutter. The man was inside the game -- a member of Bill Clinton's cabinet, chairman of the President's council of economic advisers. Most sick-making for Stiglitz is that the US-backed oligarchs stripped Russia's industrial assets, with the effect that national output was cut nearly in half. After privatisation, Step Two is capital market liberalisation. In theory this allows investment capital to flow in and out. Unfortunately, as in Indonesia and Brazil, the money often simply flows out. Stiglitz calls this the `hot money' cycle. Cash comes in for speculation in real estate and currency, then flees at the first whiff of trouble. A nation's reserves can drain in days. And when that happens, to seduce speculators into returning a nation's own capital funds, the IMF demands these nations raise interest rates to 30%, 50% and 80%. `The result was predictable,' said Stiglitz. Higher interest rates demolish property values, savage industrial production and drain national treasuries. At this point, according to Stiglitz, the IMF drags the gasping nation to Step Three: market-based pricing -- a fancy term for raising prices on food, water and cooking gas. This leads, predictably, to Step-Three-and-a-Half: what Stiglitz calls `the IMF riot'. The IMF riot is painfully predictable. When a nation is, `down and out, [the IMF] squeezes the last drop of blood out of them. They turn up the heat until, finally, the whole cauldron blows up,' -- as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998. Indonesia exploded into riots. There are other examples -- the Bolivian riots over water prices last year and, this February, the riots in Ecuador over the rise in cooking gas prices imposed by the World Bank. You'd almost believe the riot was expected. And it is. What Stiglitz did not know is that Newsnight obtained several documents from inside the World Bank. In one, last year's Interim Country Assistance Strategy for Ecuador, the Bank several times suggests -- with cold accuracy -- that the plans could be expected to spark `social unrest'. That's not surprising. The secret report notes that the plan to make the US dollar Ecuador's currency has pushed 51% of the population below the poverty line. The IMF riots (and by riots I mean peaceful demonstrations dispersed by bullets, tanks and tear gas) cause new flights of capital and government bankruptcies. This economic arson has its bright side -- for foreigners, who can then pick off remaining assets at fire sale prices. A pattern emerges. There are lots of losers but the clear winners seem to be the western banks and US Treasury. Now we arrive at Step Four: free trade. This is free trade by the rules of the World Trade Organisation and the World Bank, which Stiglitz likens to the Opium Wars. `That too was about "opening markets",' he said. As in the nineteenth century, Europeans and Americans today are kicking down barriers to sales in Asia, Latin American and Africa while barricading our own markets against the Third World's agriculture. In the Opium Wars, the West used military blockades. Today, the World Bank can order a financial blockade, which is just as effective and sometimes just as deadly. Stiglitz has two concerns about the IMF/World Bank plans. First, he says, because the plans are devised in secrecy and driven by an absolutist ideology, never open for discourse or dissent, they `undermine democracy'. Second, they don't work. Under the guiding hand of IMF structural `assistance' Africa's income dropped by 23%. Did any nation avoid this fate? Yes, said Stiglitz, Botswana. Their trick? `They told the IMF to go packing.' Stiglitz proposes radical land reform: an attack on the 50% crop rents charged by the propertied oligarchies worldwide. Why didn't the World Bank and IMF follow his advice? `If you challenge [land ownership], that would be a change in the power of the elites. That's not high on their agenda.' Ultimately, what drove him to put his job on the line was the failure of the banks and US Treasury to change course when confronted with the crises, failures, and suffering perpetrated by their four-step monetarist mambo. `It's a little like the Middle Ages,' says the economist, `When the patient died they would say well, we stopped the bloodletting too soon, he still had a little blood in him.' Maybe it's time to remove the bloodsuckers. [EMAIL PROTECTED] Economists at war: How a difference of opinion over globalisation turned personal. By Philip Thornton, Economics Correspondent The Independent / 06 July 2002 archives.econ.utah.edu/ archives/a-list/2002w28/msg00005.htm An ugly spat between a Nobel prize-winning economist and a senior figure at the International Monetary Fund has exposed a deep rift over the role of an institution that has already attracted widespread hatred. The financial community has been taken aback by the level of personal abuse being traded between two such high-powered intellectuals. The row began last week when Professor Joseph Stiglitz set out on the lecture circuit to promote his latest book, Globalisation and Its Discontents. The book is an attack on the IMF but written in a style to make it accessible to non-economists. The document was always likely to cause controversy. For three years Professor Stiglitz was chief economist at the World Bank, the sister organisation to the IMF, which channels Western money to the poorest nations. He quit in 2000 to take a job in academia and immediately began to pen attacks on the IMF's work. His new book takes the fund to task over its role in the financial crises in Asia in 1997, Russia in 1998, Brazil in 1999 and again this year and Argentina in 2001. But the remark that has triggered the anger of Kenneth Rogoff, the head of research at the IMF, is an accusation of "venality" against Stanley Fischer, formerly deputy head of the fund. Professor Stiglitz notes that Mr Fischer went from the IMF to the banking giant Citigroup, where the former US treasury secretary Robert Rubin was chairman. "[Rubin] had a central role in IMF policies," Professor Stiglitz wrote. "One could only ask, was Fischer being richly rewarded for having faithfully executed what he was told [by the US Government] to do?" He added that one "need not look for venality" to mount a critique of the fund's policies. This drew the sharpest barb from Mr Rogoff. He used a lunchtime debate last week to launch his rival's book to unleash a fierce attack. "Joe, Stan Fischer is well known to be a person of unimpeachable integrity," he told a gathering of Washington's great and good. "Of all the false inferences and innuendos in this book, this is the most outrageous. I'd suggest you should pull this book off the shelves until this slander is corrected." Mr Rogoff used fact and sarcasm not only to challenge Professor Stiglitz's critique of the fund but also to undermine his ideas. "You put forth a blueprint for how you believe the IMF can radically improve its advice on macroeconomic policy. Your ideas are at best highly controversial, at worst, snake oil," the IMF official said. Professor Stiglitz defended his book and accused the IMF chief of simply "reading out a prepared diatribe. Instead the IMF once again showed its reluctance to engage in substantive debate, confirming in a way one of the main concerns of my book," he said. The IMF is already loathed by the anti-globalisation pro-testers, who have engaged in violent clashes in cities such as Seattle, Stockholm, London, Genoa, Ottawa and Washington. While they accuse the IMF simply of being an agent of Western capitalism, critics such as Professor Stiglitz build a more intellectual case. His central point is that throughout the recent crises the IMF insisted on prescribing bitter economic medicine for the emerging market economies. He says that the IMF erred by applying "market fundamentalist" solutions to countries on the brink of collapse - floating the exchange rate, banning capital controls, cutting deficits and raising interest rates. He advocates a mixed solution, allowing countries to run deficits - as many Western economies do now - greater regulation of banking systems and bankruptcy protection for struggling countries. Professor Stiglitz has attracted fans within, as well as outside, the financial system. Sheetal Radio, senior economist at Standard & Poor's MMS, said the IMF was a "one-size-fits-all shop that ignores the importance of social, political and cultural factors that drive economic policy". But supporters of globalisation are glad the IMF has finally come out publicly after three years of attacks and believe Mr Rogoff's riposte was carefully planned. Diane Coyle, the managing director of Enlightenment Economics, said: "The IMF is actually quite open to criticism and have admitted their mistakes and backtracked on some of their policies, such as capital controls for Asia." The Economic War Of Words Kenneth Rogoff "I failed to detect a single instance where you, Joe Stiglitz, admit to having been even slightly wrong about a major world problem ... "Your book is long on innuendo and short on footnotes ... Your ideas are, at best, controversial and, at worst, snake oil ... "Do you ever lose a night's sleep thinking that just your impulsive actions might have deepened the downturn ... ? "Joe, as an academic you are a towering genius. As a policymaker you were just a bit less impressive" Joeseph Stiglitz "It was not just that IMF policy might be regarded as inhumane. Even if one cared little for those who faced starvation ... it was simply bad economics ... Ken Rogoff simply read out a prepared personal diatribe ... The IMF, once again, showed its reluctance to engage in substantive debate ... One could ask, was Stan Fischer [the former number two at the IMF] being richly rewarded for having faithfully executed what he was told to do ... ? The IMF felt it had little need to take lessons on board because it knew the answers" --------------------------------- Yahoo! Messenger NEW - crystal clear PC to PCcalling worldwide with voicemail [Non-text portions of this message have been removed] ------------------------ Yahoo! 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