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Globalisation, the IMF and Governance

Author(s): D. N. Ghosh
Source: Economic and Political Weekly, Vol. 37, No. 39 (Sep. 28 - Oct. 4, 2002), pp. 3980-3982
Published by: Economic and Political Weekly
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Joseph Stiglitz's new book breathes moral outrage against the

IMF. But any reformmeasures confined to the BrettonWoods
institutionswould not be an adequate response to the challenges of
global capitalism. The scope and dimensionsof collective action
have to be much wider than redefiningthe role of the IMF and
reformingits governance as recommendedby Stiglitz.

Joseph Stiglitz' s Globalisation and Its

Discontents is a forceful indictment

of the IMF and its policies.1 The tenor
and tone of his observations, full of biting
sarcasm, will be music to many in the
developing countries. Sample a few comments taken at random.The IMF is a "part
of TreasuryTurf', "reflecting the interest
and ideology of the western financial
community".Itsrescuepackagesare virtual
bail-outs of irresponsible and reckless
lenders in Wall Street; much of the money
given to save Indonesia,forexample, found
its way to the same lenders, the new
'colonial powers', as Stiglitz dubs them.
He recalls the memorablepictureof Michel
Camdessus standing "with a stern face and
crossed arms"over the "seated and humiliated" president Suharto of Indonesia
putting his signature on the agreement
with the IMF. As Stiglitz remarks, the
hapless Suharto was being forced to turn
over economic sovereignty of the country
to the IMF in returnfor the aid his country
needed, reminiscent of agreements signed
"during the opening up of Japan with
AdmiralPerry's gunboat diplomacy or the
end of the opium war or the surrenderof
Maharajas in India". In many countries
privatisation in Stiglitz's view has become a term standing for "anarchic theft
by all from all". Internationalbureaucrats
look at it with callous indifference. Stiglitz
is caustic in criticising the public display
of arrogance by the bureaucrats of the
internationalfinancial institutions.He cites
as the visible evidence of the success of
privatisation"thetrafficjams of cars, many
of them Mercedez, leaving Moscow on a


summer weekend" and "the stores filled

with importedluxury goods, a fardifferent
picturefrom the empty andcolourless retail
establishment under the former regime".
What Stiglitz says cannot be dismissed
offhand as the rhetorical outpourings of
a leftist intellectual. His is the ringside
view of a person who was chairmanof the
US president's Council of Economic
Advisors andchief economist of the World
Bank; When a Nobel Laureate speaks, we
need to listen.
Over the years since its inception, the
IMF has changed markedly. It was created
to manage the international monetary
system based on the gold-exchange standard at a time when currencies were not
freely convertible. Its strategy has been to
correctmarketdistortionsthroughmanagement of exchange ratesandcurrentaccount
deficits. The context has now entirely
changed. With the replacement of fixed
exchange rates with floating exchange
rates, with capital controls giving way to
capital mobility and an explosive growth
in the international market for financial
assets, the IMF had to change. And change
it did, but unfortunately as Stiglitz argues
repeatedly, by asserting with ideological
fervour its belief in market supremacy.
The Washington Consensus symbolises
the ideological articulationof thatchange.
The pillars of this consensus rest on trade,
capital market liberalisation and privatisation. It is the mix of of these policies
that has, as Stiglitz argues, "generated
errors on a grand scale". Trade liberalisation accompanied by high interest rates
has become in many countries a certain
recipe for job destruction at the expense
of the poor. Financial marketliberalisation

unaccompanied by an appropriateregulatory structure has generated economic

instability, making it harderfor poor farmers to buy seeds andfertilisers.Privatisation
unaccompanied by competitive policies with oversight responsibility to ensure that
monopoly powers are not abused - ultimately leading to higher. not lower, prices
for consumers. Fiscal austerity pursued
blindly is leading to high employment.
The distortion of priorities and strategies
in the IMF agenda is broughtout by Stiglitz
sharply in the following words: "It is
importantnot only to look at what the IMF
put on the agenda, but what it leaves off.
Stabilisation is on the agenda;job creation
is off. Taxation, and its adverse effects, are
on the agenda; land reform is off. There
is money to bail out banks but not to pay
for improvededucationandhealthservices,
let alone to bail out workerswho arethrown
out of their jobs as a result of the IMF's
macroeconomic mismanagement."
These concerns are not new, but the
forcefulness of Stiglitz' s style has a telling
effect. Many government leaders of client
nations will see in him an effective and
perhapsunderstandingspokesman on their
behalf, bringing out in the open what they
express "in private but not in public for
fear of reprisal". Korean officials, for
example, reluctantly explained that "they
had been scared to disagree openly". The
IMF, they feared, would not only cut off
its own funds, but could use its influence
to discourage investments from private
market funds by telling private sector
financial institutions of the doubts the
IMF hadaboutKorea's economy. So Korea
felt that it had no choice. An imbalance
of power between the IMF and the client
country, in-built in the IMF constitution,
has stifled discussion of alternative options with client governments. Any dissent, expressed openly, could be viewed
as a challenge to inviolate orthodoxy,
undermining the IMF's authority and
credibility, something that the IMF could
not allow. As Stiglitz puts it crisply, what
IMF believes is that it "is the font of
wisdom, the purveyor of an orthodoxy
too subtle to be grasped by those in the
developing world".
The book breathesmoraloutrageagainst
the IMF. Outrage against sickening
poverty in many developing countries,

Economic and Political Weekly

September 28, 2002

sharp inequalities in income and wealth enterprises and develop a few of them as
distribution,accentuating as time goes on, global players.
It is again the home-grown political elite
the surging tide of joblessness, with no
prospects of its abating. The objective that that, in contract after contract, has made
Stiglitz has set before himself is clear: to it a point to honourcommitments thatwere
paint IMF as the culprit for many of the drawn up on a one-sided basis. If Wall
ills in the developing countries. He has, Street investment bankers and others of
so it seems, chosen facts selectively and their kind could salvage whatever they
craftedhis presentationto suit it. Examples could out of IMF rescue packages, no less
are drawn mostly from sub-Saharan Af- culpable were the incestuous circles of
rica, east Asian countries and Russia, but political bigwigs andbusiness tycoons who
even here, to condemn the IMF as prima- transferred their wealth to overseas locarily responsible for the happenings in those tions. They remain wedded, with apparent
countries is too sweeping to accept.
unconcern,to profligacy,opening the floodIndia's own experience with the IMF, gates for subsidies not to those who deserve
many would argue, does merit some dis- it but to those who are beholden to them
cussion, but it is conspicuous by its ab- in the political power equation. The consence in Stiglitz's book. Somewhat inex- sequences are all there to see, as national
plicably, in a book of 282 pages, India treasuries become bankrupt, unable even
occurs only once and that too incidentally. to meet commitments to pay meagre penIs it thatIMF has never done anything right sions and salaries to school teachers and
anywhere? Many have and more are sure other less advantaged sections of society.
to join issue with Stiglitz. Perhaps we need
This polemic by theNobel Laureatemight
to wait, as Benjamin Friedman says, in a prove to be a handy sourcebook for the
review in New York Review of Books conceited and corrupt political class that
(August 2002) for either Stanley Fisher or has taken command in most developing
Lawrence Summers to write a rejoinder countries. A source of inspiration for
and argue out the case for IMF. Hopefully rhetorical denunciation of the IMF and
we can look forwardto interesting debates other first world establishments. Poverty
in the months to come.
and all of the world's ills can be conveIn discussing the burning issues of the niently foisted on their 'insensitive polidevelopment debacle in many poor coun- cies', while the carpet-bagging ruling elite
tries we cannot ignore the primaryrole and can continue with its self-enrichment that
responsibility of the ruling political class. is sought to be passed off as governance.
If the developing countries are not
In some places people have placed their
trust in their rulers voluntarily, in many developing it is not so much because of
others it came out of the barrels of guns. what IMF does or does not do, but because
Stiglitz has been inexplicably kind to them. of the way the political class in every
If the IMF is able to get away with its country crafts and pursues its development
imperial attitude, it does find congenial policy and strategy. What choices are open
allies in the political and business estab- to us? In an age of globalisation, market
lishments in every country. If the IMF were capitalism can make a difference to the
to blame, no less blameworthy are the economy and society only if it is underrulingpolitical class andtheiraccomplices. pinned by policies to create and support
Whateverpolicy prescriptioncame down institutions,domesticallyas well as globally.
from the IMF, however imperious, had Even if a country is gifted with an enlightmore to do with the abject failure of ened political class, it will have to reckon
governance that preceded the crisis which with the central problem of global capibrought in the IMF in the first place, and talism. Economic globalisation does not
which in most places continued thereafter. necessarily strengthen the current regime
Further, it is this self-same fully home- of market capitalism; it works incessantly
grown indigenous ruling elite that actively to undermine it. The swift waxing and
connived at the kind of privatisation that waning of industries, the sudden shifts of
turned over large national enterprises to production and market capitalisation, the
friends and cronies, allowing them to casino of currency speculation, these will
maximise their wealth by stripping assets continually remain the challenges en route
of these enterprisesandmaking themselves to benefiting from a global free market.
instant billionaires. It is the same class
New technologies make full employwhich are mastersin foot-dragging, avoid- ment policies of the traditional sort uning the discipline of a policy regime that workable.Informationtechnology is throwcan enhanqethe efficiency of state-owned ing social division of labour into a flux.
Economic and Political Weekly

September 28, 2002

A combinationof this increasingstream

of new technologies, unfetteredmarket
competition,and weak and fracturedsocial institutionsis generatingan anarchic
environmentof disorganisedglobal capitalism.Not dissimilar,as manywouldsay,
to whatMarxandEngelsportrayedin the



revolutionising of production, uninterrupteddisturbanceof all socialconditions,

everlastinguncertaintyand agitationdistinguishthebourgeoisepochfromallearlier
ones. All fixed, fast-frozenrelations,with
theirtrainof ancientandvenerableprejudices and opinions, are swept away, all
theycan ossify. All thatis solid meltsinto
air, all that is holy is profaned,and man
is at last compelled to face, with sober
senses, his realconditionsof life, and his
relationswith his kind."
In the concludingchapter,Stiglitz outlines a seven-pointstrategyaimedprimarily at bettergovernance,improvedrisk
net,less relianceonbail-outsandimproved
responseto crisis, bankruptcyreformand
managementof capital marketliberalisation.Whethera countrypursuestheIMF
agenda,within the frameworkof global
economy, as it functions today, or the
alternativestrategyset out by Stiglitz, it
can neverreliablyknowwhetherthe consequenceof IMFpolicies was worsethan
whatit wouldbe underStiglitz'salternative
proposal.No economycan insulateitself
from the wave of creative destruction
inherentin global capitalism.What can
save it is a regime of global governance
in which world marketsare managedso
as to promotethe integrityof states and
the cohesion of societies - of currencies,
capitalmovements,tradeandenvironmental conservation.Yet the replacementof
by a managedregime
for the world economy is still a utopian
dream.Such a regimecan be established
by the world's great economic powers
actingin concertandinvolvingthe active
participationof all countries.But so long
as theUS remainscommittedto theglobal
free market,it will veto any such forum.
Recallin this contexthow the proposalto
sponsora separateAsian Fundhad to be
put in cold storagebecauseof resistance
from the US.
There can be no salvation from the
adverse consequences of globalisation
unless countriesmove for global collective action.A global regimehas to be in
place.The issues it has to addressandthe


institutions that it would need for support

form the theme of a comprehensive research project under the auspices of the
UNU World Institute for Development
Economics Research(WIDER). The policy
brief (no 5) published by WIDER gives
a bird's-eye preview of the results of the
researchstudy.2 Apartfrom reforming the
existing Bretton Woods institutions, the
study underlines the need for effective
global governance in four areas. There has
to be an institutional framework for global
macroeconomic management; the crossborder consequences in the age of
globalisation cannot be left entirely to the
market. The G-7 does provide an institutional framework for consultation on, if
not coordination of, macroeconomic policies, but such policies and their management have to win acceptance from all
countries affected by cross-border consequences. Such an international institution
can have legitimacy only if arrangements
for its governance do not suffer from what
the study calls the 'democratic deficit' in
many internationalinstitutions. Second, a
new internationalfinancial architecturehas
to be in place to deal with the problems



of not only crisis management but of crisis

prevention as well. The integration of
developing economies with the world
economy thatpromotes ratherthanhinders
development has to be its primary objective. Third, Trans National Corporations
(TNCs) that dominate cross-border trade,
investment and technology and are the
primarydrivingforces behindglobalisation
have to be brought under some kind of
discipline. A regime of global governance
can never be a reality unless nations think
in terms of creation of an international
system of governance for TNCs. The
problem today is that there are no rules,
even contemplated let alone negotiated, on
what TNCs can do or cannot do. There is
need for an international regime of discipline that emphasises and enforces not
only rights but also obligations of TNCs.
Finally, globalisation has set in motion
forces which are creating a demand for
labour mobility across borders and a global regime needs international rules and
internationalinstitutions thatgovern crossborder movement of people.
The creation of "missing institutions"in
these four critical areas is what the study

1 Joseph E Stiglitz, Globalisation and Its

Discontents, W W Norton and Company,
New York, 2002.
2 Governing Globalisation:
Issues and
Institutions,edited by Deepak Nayyar,Oxford
University Press, Oxford, 2002.

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recommendsas the foundationfor global

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explosivegrowthin international
assets,theirvolatilityandassociatedcontagionrisks,the need for supplyof emergency financingin times of crisis, standstill provisionsfor orderlydebt work-out
liberalisationand soundcorporategovernance- these are issues that the Bretton
Woods institutionsare today unable,by
themselves,to grapplewith. Any reform
measuresconfinedto the existingBretton
Woods institutions would not be an
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to be much wider than what Stiglitz has
IMF and reformingits governance. m

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Economic and Political Weekly


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September 28, 2002