Re: ``globalization'' and poverty

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

Tim,

I think you raise an interesting point about the IMF's focus on internal
policies causing the crisis. What I have found in my own research is that
the IMF often focuses on the WRONG set of internal policies. For example, in
Russia, the IMF focused almost exclusively on meeting fiscal and monetary
targets. What they ignored was that the banking system was a classic
Potemkin village. Mixing this Potemkin village with speculative capital
flows was a disaster.

One conclusion I have come to about IMF "conditionality" is not that
"conditionality" is bad, but that it is misfocused. On the other hand you
raise a good point about requiring adjustments by surplus nations. This was
of course part of the original goal of Bretton Woods-to coordinate
adjustments in ways that would not require painful adjustments and thus
threaten to destablize the system.

I found your discussion of the legal implications of monetary policy to be
of interest-but lack the knowledge to fully engage you on matters of law. I
would still prefer that the priorities of the FED be legislated (as they
are) and that Congress exercise effective oversight. But I cannot imagine
having monetary policy micromanaged to be effective.

-----Original Message-----
From: Canova, Timothy
To: 'pkt@xxxxxxxxxxxxxxxx'
Sent: 5/12/01 5:32 PM
Subject: Re: ``globalization'' and poverty

Colin Danby wrote:

>As a matter of logic, blaming internal factors does not require one to
>be a neoliberal.

>In other words, it is possible that state policy is bad, but not for
the
>reasons that a standard IMF-style Polak model identifies.

>To blame all problems on the evil IMF, or on vague metaphors like
>"currency contagion," is just as simplistic as blaming all problems on
>too much government spending.

Dear Colin,

I don't see the term "currency contagion" as a vague metaphor, but as
short-hand for the very predictable consequences of capital account
liberalization, particularly the cross-border investment in stocks and
bonds.  (While currency futures are a response to exchange rate
volatility,
may they in certain circumstances also increase the potential for such
volatility?)

It is not completely balanced or fair to equate the placing of some
portion
of blame on the IMF with the simplistic blaming of all problems on
internal
factors.  The fact is that critics of the IMF are able to offer a
nuanced
analysis of the dangers of the entire range of IMF policy prescriptions,
from capital account liberaliztion to austerity and privatization; and
to
offer alternatives, such as placing the burdens of adjustment on chronic
surplus countries.  But such discussions are more complex than IMF
apologists prefer to engage in.  It's far easier to dismiss IMF critics
as
"simplistic" rather than responding to the particulars of the critics.
The
irony is that IMF apologists are the ones who are simplistic in always
finding fault with the internal policies and structures of deficit
countries
as an explanation for their currency problems, and in always calling for
the
same tired solutions.

I am not suggesting (and never have suggested) that everyone who finds
fault
with state policies is on board the IMF's neoliberal program.  Rather, I
am
suggesting that a recurring tactic of IMF apologists is to focus all
discussion on the sins of the deficit countries, to the complete
exclusion
of external factors and alternative monetary regimes.

Tim



-----Original Message-----
From: Colin Danby [mailto:danbyc@xxxxxxx]
Sent: Tuesday, May 08, 2001 1:26 PM
To: pkt
Subject: Re: ``globalization'' and poverty


Hello Tim,

Just real quickly on your points.

> (1) i agree that firms should be able to raise money, but permitting
> speculation in currency futures is a rather extravagent and dangerous
way to
> do that.

I'm not sure exactly how we moved from one to the other.  Portfolio
flows are going to be important for firms raising money.  Do you
literally mean currency futures?  In any case any cross-border ownership
of claims on payment flows is going to involve exchange rate risk.

> (2) even if, as you say, "Mexican banks have not been especially
wonderful",
> opening up the country's bond markets to foreign exchange risk is not
an
> appropriate response.

I'm not sure what this means.  When did this "opening" take place?
Mexican financial markets have been structurally subject to fx risk for
a long time -- this is part of the argument i made in a paper in the
spring 2000 jpke.

> (3)  it's my recollection that Fidelity and Merrill were both very
exposed
> to the tesobono crash.
> Mexico may not have missed a payment, but at what price and to whom?

as *banks* subject to BIS capital adequacy rules?

I do agree that having the U.S. government as a guarantor of Mexican
payment has over time been a bad thing.  (Jorge Castaneda, now foreign
minister, used to make this argument.)

> (4)  yes, BIS does give out seals of approval.  it's called the Basle
> Accord.  when home mortgages require substantial capital reserves, but

> Mexican government debt requires none, that certainly seems like a
stamp of
> approval.

I know what the Basle accord is, but does the BIS itself ratify
compliance?  I genuinely don't know the answer to this.  One usually
hears of this just in terms of sets of rules that countriew agree they
will try to enforce.

> (5)  yes, neoliberals always blame the "internal conditions" for
currency
> collapse and hardly ever identify the external factors.

As a matter of logic, blaming internal factors does not require one to
be a neoliberal.

In other words, it is possible that state policy is bad, but not for the
reasons that a standard IMF-style Polak model identifies.

To blame all problems on the evil IMF, or on vague metaphors like
"currency contagion," is just as simplistic as blaming all problems on
too much government spending.

Best, Colin