Asia Times: Stiglitz fires farewell salvo at World Bank, IMF



	December 2, 1999	atimes.com

Global Economy

Stiglitz fires farewell salvo at World Bank, IMF
By Jim Lobe

WASHINGTON - Joseph Stiglitz, the outgoing chief economist at the World Bank, has laid down a farewell barrage against the operations of the bank and the International Monetary Fund in developing countries during the 1990s.

In a lengthy article published in London's Economic Journal, Stiglitz, who announced his resignation from the bank last week, argued that international financial institutions should be more open to alternative views and their own differences of opinion.

The policy of imposing conditions on countries seeking economic aid had failed, Stiglitz wrote. The bank and the IMF, he went on, should assume a more modest role as economic advisers to governments, particularly as they themselves do not always agree on the best policies to pursue at any given moment.

''The design of economic policy represents a balancing of concerns, and it is up to the country to make the political decisions about how the various risks are to be balanced. These are not just technical matters to be left to international bureaucrats, as competent as they may be, and it is important that there be more than one source of opinion, of information, of advice.

''The benefits of a diversity of viewpoints outweigh the costs of the occasional confusion they engender,'' Stiglitz wrote. ''Ultimately, if we believe in democratic processes, the countries must make the decisions for themselves, and the responsibility of economic advisers is only to apprise them of prevailing views concerning [the] consequences.''

Calling for widening the debate on economic policy and making it more open, he wrote: ''We do a disservice in pretending that there is more consensus on these matters than there actually is. Open discussion when there is a lack of agreement seems healthy.''

Stiglitz also argued that imposing policy conditions on governments in return for financial bailouts may be counter-productive. ''Was imposing conditionality an effective way of changing policies?'' he asked. ''There is increasing evidence that it was not. Good policies cannot be bought, at least in a sustainable way.''

In some cases, imposing conditions ''undermined democratic processes'', he added.

The article was the latest attack by the free-spirited Stiglitz whose departure from the bank, according to one newspaper report, was the price of the US Treasury's support for bank president James Wolfensohn's new term in office.

The bank has denied that such a trade-off had taken place, and Wolfensohn has appointed Stiglitz to head a committee to find his successor and agreed to make him a special advisor after his return to academic life.

Bank officials also said the Economic Policy article was broadly consistent with the findings of recent studies by the Bank. ''There were no major surprises in the article,'' a spokesman said and pointed out the article itself was posted on the Bank's Internet website.

Stiglitz, an academic who will return to Stanford University next February, has caused discomfit at the US Treasury and the IMF - the high priests of the so-called 'Washington Consensus' - since he joined the bank in February 1997 after serving as chairman of the White House Council of Economic Advisers. He especially annoyed IMF managing director Michel Camdessus by his frequent attacks on the fund's inflexibility in imposing fiscal austerity on the victims of the Asia financial crisis.

''Virtually every American economist rejects the balanced-budget principle during a recession,'' Stiglitz pointed out, at a time when the IMF was urging precisely that approach on its Asian clients. ''Why should we ignore this when giving advice to other countries?''

He also harshly criticized the sweeping financial market liberalization that the Treasury, the World Bank and the IMF urged developing countries to follow in order to attract foreign capital, and the priority placed on privatization in Russia. Both policies, he said, helped explain the series of crises which have buffeted much of the developing world over the last several years.

Stiglitz did not retreat from any of these positions in his article in the Economic Journal, published by Britain's Royal Economic Society, but he treated them as part of a broader critique of the way international agencies wield their power vis-a-vis developing countries.

He argued that different bureaucracies - at the international as well as the national level - have different constituencies with different special interests which they pursue in one way or another. ''It should not be surprising,'' Stiglitz said, ''that any international agency that reports to central banks and finance ministries reflect the views and interests of those agencies and their constituencies more than it does the views and interests of others.''

As a result, there were ''real risks associated with delegating excessive power to international economic agencies, and a real challenge involved in making these institutions take positions that are more reflective of stances that might have evolved if they were indeed more democratically accountable''.

According to Stiglitz, ''not only may an institution not serve the general interest and weigh the welfare or perspectives of certain groups more than others but the institution actually can become an interest group itself, concerned with maintaining its position and enhancing its power. This problem becomes particularly alarming when the power and prestige of an international organization is pitted against the weak position of a developing country that is appealing to the international community in a time of crisis.''

The result is that, when things go wrong, the agencies often insist that the policies they recommended were correct, but that the government failed to implement them properly, he said. Noting that there have been financial crises in 100 countries during the past 25 years, Stiglitz suggested it was necessary to examine those policies more closely.

''When a single car has an accident on the road, one is inclined to blame the driver or his car. When there are dozens of accidents at the same spot, however, the presumption changes. ''It is likely that something is wrong with the design of the road.'' Stiglitz added that so many financial crises in such a short time suggested ''systemic problems''.

Even the World Bank and the IMF sometimes had major differences of view owing to their different constituencies and functions, according to Stiglitz. ''What may be good for stabilization (the IMF's main concern) today may hinder long-term development (the bank's main focus),'' he said.

''The two institutions do not always speak with one voice . . . To some, this is disturbing: there is presumably only one truth, and the international institutions should be leading the less developed countries toward that truth! But to me, open discussion when there is a lack of agreement seems healthy.''

Moreover, given the power on these institutions and the lack of democratic governance, he continued ''it is all the more important that different voices be heard. To be sure, the different voices may give rise to a vigorous democratic debate, which may be uncomfortable to those wishing to ensure that their views prevail, but that is one of the 'prices' we pay for democracy.'

(Inter Press Service)

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