Re: Re. The IMF in Argentina

["Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>]

Leigh:

 

I agree with all your points.

 

As for the "stable exchange rates" aspect of the IMF's Articles of Agreement in (a) below, it is a long-standing fiction at the level of (b) and (c) that stability of exchange rates is a function of "underlying fundamentals" so that, once the latter have been brought into line, then - and only then - the stable exchange rates objective of the Articles of Agreement will have been attained.

 

The fiction is a left-over from the Friedmanite notion that advocacy of flexible exchange rates is not to be mistaken for advocacy of variable exchange rates - that, while free to move, exchange rates will in fact be stable given appropriate 'fundamentals'.

 

Gunnar

----- Original Message -----

From: Leigh Harkness

To: Gunnar Tomasson ; pkt@xxxxxxxxxxxxxxxx

Cc: Gang8

Sent: Monday, May 06, 2002 6:10 AM

Subject: Re: Re. The IMF in Argentina

Gunnar

 

You wrote:

 

"the entire IMF membership whose collective wisdom, as (a) enshrined in the IMF's Articles of Agreement, (b) updated twice a year by a Committee of IMF Ministers of Finance and Governors of Central Banks, and (c) supervised on a daily basis by the IMF Executive Board, whose 25 members are appointed by the IMF's 180 odd member countries."

 

The IMF does not adhere to its Articles of Agreement any more.  One of the obligations of members in Article IV "each member undertakes to collaborate with the Fund and other members .... to promote a stable system of exchange rates." 

 

The IMF does not promote that any more.  Since President Nixon chose not to cut spending on the Vietnam war and float the US exchange rate instead, the IMF has promoted the floating exchange rate system, which produces unstable exchange rates.

 

When I have dealt with the IMF for a government, I found that they needed to be managed.  The member of the IMF is the Government, not the central bank.  But I found that they acted as if the central bank was the member. 

 

The central bank is only an instrument of the Government.  However, I found that the IMF tried to make the central bank its instrument.  It was a form of colonialism where the foreign power had its own agents managing a major part of the economy, not for the benefit of the people of that country, but according to some economic theory that had not been proven to be anything more than some form of wishfull thinking.

 

Even when you explain to them your situation, they do not accept your explanation.  You have some kids just out of university who had no experience in their own county, let alone yours, trying to tell you how to run your country.   When they force policies on you and, as you tell them, they fail, they take not responsibility.  The team that pushed those policies have moved on, and you are faced with a new bunch of economists who think that economic text books are not just a teaching tool but a manual for running an economy.

 

 

Regards

 

Leigh

 

 

 

 

 

----- Original Message -----

From: Gunnar Tomasson

To: pkt@xxxxxxxxxxxxxxxx

Cc: Gang8

Sent: Monday, May 06, 2002 9:25 AM

Subject: Re. The IMF in Argentina

Below is a message which I posted today to Gang8.

 

Gunnar

 

****

 

Some time ago, I made the point on PKT - to less than rousing reception - that academic economists who bad-mouth orthodox IMF monetary policy prescriptions (including Stiglitz now that there is mileage to be had in doing so) conveniently disregard that the IMF does not generate the orthodoxy itself.

 

In this respect, the IMF is the messenger of news in the monetary field which, when last I checked, is the logical outgrowth of what mainstream and monetarist scholars have been teaching their students for the past fifty years or so.

 

Of course, the argument why it is asinine to charge the intellectual sins of orthodoxy to the IMF as such cuts no ice among those whose intellectual capital is invested in mainstream and monetarist orthodoxy.

 

As for Palast's charges of "arrogance" against IMF staff in negotiations with Argentina and other countries in distress, this is the equivalent of what in Iceland we call hanging the baker for the smith - the smith in this case being the entire IMF membership whose collective wisdom, as (a) enshrined in the IMF's Articles of Agreement, (b) updated twice a year by a Committee of IMF Ministers of Finance and Governors of Central Banks, and (c) supervised on a daily basis by the IMF Executive Board, whose 25 members are appointed by the IMF's 180 odd member countries.

 

And how might the IMF's academic critics hope to gain some credibility?

 

By (1) recognizing, and (2) advocating that, in the case of monetary screw-ups of the Argentine variety, the rule should be to let BYGONES BE BYGONES - that is, IF the legacy of past monetary mistakes is strangling current production possibilities THEN the ONLY workable way out of the mess is to remove the stranglehold of the past over the present.

 

In Preface to 'Tract on Monetary Reform', Keynes noted the self-evident fact that this is the ONLY way in which monetary messes of monumental proportions can be resolved - but, as he noted, (my paraphrase), it is a technical resolution which is certain to be opposed by all and sundry who have a dime's worth of vested interest in the monetary mistakes of the past.

 

Gunnar