The International Monetary Fund (IMF) is the organization that was formed in 1945 to facilitate global economic trade and development. In his book, Globalization and Its Discontents, Nobel laureate Joseph Stiglitz voices critique over the ideology of the IMF and argues that the IMF failed to achieve its primary goal of improving the economic situation in its member countries.
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In the first half of the 20th century, when the idea of the IMF was conceived, certain economists argued that the economies of individual countries could operate more smoothly if some level of global collective action existed (Stiglitz 196). The creation of IMF was a response to a growing concern that market failures in particular countries have a negative effect on the world’s economic stability.
The IMF was established to perform a regulatory function, provide financing and advice to the world’s countries with the aim to facilitate economic growth. There is no denying that collective action may be beneficial to global economic stability if it is aimed to address the market failure of a particular country. An individual country is largely interested in acting in its own best interests, with no regard for the global consequences of its actions.
The IMF was created “to put international pressure on countries to have more expansionary policies than they would choose of their own accord” (Stiglitz 197). However, Stiglitz argues that the actual agenda of the IMF is based upon flawed policies that undervalue the role of the government and are based upon out-of-date assumptions about the operation of the economy. Stiglitz goes as far as to blame the IMF for the East Asian financial crisis and critiques the interventions of the IMF in other regions of the world.
The current agenda of the IMF, as Stiglitz sees it, is based on free-market ideology, and overestimates the self-sustaining ability of individual markets, while putting little confidence in the governmental action. According to the author, the interventions of the IMF had no sound explanations for them, and due to their seemingly random nature, did not lead to improved outcomes. Stiglitz blames the IMF’s “lack of coherent and reasonable complete theory,” which results in negative, rather than positive, outcomes of the IMF’s interventions (Stiglitz 199).
The policies of the IMF are based on the neoliberal doctrine, which implies that economic growth is driven by competition, and the market with limited governmental regulation is bound to drive the economy to efficient outcomes. Stiglitz argues that such a view is out-of-date and ignores more than 30 years of the development of economic theory. The current agenda of the IMF, according to Stiglitz, has adverse effects on the world’s economy due to the lack of government oversight. The IMF is, therefore, dominated by economists acting in their best interests, rather than in the interests of member countries.
Stiglitz claims that the IMF is to blame for the failure of the development of many emerging markets and that its interventions led to poor outcomes. To support his argument, Stiglitz highlights the IMF’s helplessness in East Asia’s economic crisis, among other things. The crisis, which occurred in 1997 when Thai Baht plummeted, had affected Asian countries initially, but quickly spread globally and turned into one of the greatest global economic crises (Stiglitz 89).
Back then, the IMF blamed the political systems of involved countries and the lack of financial transparency. According to Stiglitz, however, among the chief factors which contributed to the crisis is the role and operations of the IMF, which imposed policies that were at least partially responsible for the crisis and worsened its outcome (Stiglitz 89). One such policy was excessively rapid market liberalization, and another was providing huge amounts of money to keep exchange rates at unsustainable levels.
Rapid capital market liberalization implies reducing government restrictions on the market and opening up the financial markets to foreign capital, and as Stiglitz (89) points out, the process can become very dangerous if performed rapidly. The IMF also imposed certain conditions, such as very high-interest rates, a reduction in government spending, and political and structural reforms (Stiglitz 96).
The conditions did not lead to positive outcomes, and the IMF criticism of the countries’ policies lead to the flow of the capital out of the countries. The results of the economic devastation, brought about the IMF, were economic instability, high unemployment rates, and increased poverty, and had long-lasting effects on Asian countries’ economies (Stiglitz 97). The slowdown of the East Asia region had global consequences and put many developing countries in a difficult position.
Stiglitz makes a sound point that the IMF, in its current form, has shown its inability to improve global economic stability through interventions. The IMF’s response to the financial crisis in East Asia led to worse outcomes and helped spread the crisis further out. Stiglitz questions whether the IMF is, in fact, able to deliver on its promise to maintain economic stability and facilitate growth, if no policy changes within the organization are implemented.
Stiglitz, Joseph E. Globalization and Its Discontents. 1st ed. 2003. New York, NY: W. W. Norton & Company. Print. Norton Paperback.