Re: Brazil and the IMF

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

Re. the following:

The postwar liberal trading framework has become hopelessly distorted during
the past two decades by the hegemony of the U.S. dollar, high interest
rates, debt deflation, and capital flight; the asymmetries of a world so
structured are proving intolerable. The economist John Maynard Keynes
recognized this issue with characteristic clarity in the design of the
Bretton Woods institutions--the World Bank and International Monetary
Fund--in 1944. Keynes favored free markets and liberal trading arrangements
insofar as they could be made to work, but he was also well aware that free
markets are inherently unstable and prone to collapse. Keynes also
understood that the characteristic structure of unregulated international
finance placed bankers and creditors in the dominant position, and so would
inevitably force adjustment by debtors. But what was locally rational in a
financial transaction would prove disastrous for the system as a whole. As
individual debtors contracted their economies in order to meet their
interest payments, their demand for imports would diminish, and so would the
exports of their suppliers. The entire economic system would contract, and
in the end no one would be further forward in their ability to pay their
debts.

Comment:

Broadly speaking, I agree that "the hegemony of the U.S. dollar, high
interest rates, debt deflation, and capital flight" have resulted in
"intolerable" structural distortions in the world economy, as exemplified by
Brazil's past, present, and prospective plight.

However, "the hegemony of the U.S. dollar" strikes me as euphemism for the
abandonment by the U.S. Government in the early 1970s of its accustomed
guardian role with respect to postwar world monetary arrangements - it is
short-hand for the pursuit through monetary means of the
"beggar-my-neighbor" policies of the 1930s whose elimination in the postwar
period was accorded highest priority in the IMF's original Articles of
Agreement.

As for "high interest rates, debt deflation, and capital flight", these are
all manifestations of monetary policies at both national and international
levels which place vested financial interests above those of employment,
output, and economic development.

When it comes, it is fair surmise that the functional collapse of current
world monetary arrangements will catch by "surprise" policy-makers at the
U.S. Treasury, U.S. Federal Reserve, and the IMF.

Gunnar



----- Original Message -----
From: "James K. Galbraith" <Galbraith@xxxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Friday, November 01, 2002 11:05 AM
Subject: Brazil and the IMF


> PKT friends --
>
> I have just published an essay on Brazil, the IMF, and larger monetary
> issues through the Levy Institute;  it is available at
> http://www.levy.org/docs/pn/02-2.html for those who may have an interest.
>
> With regards.
>
> James Galbraith
>
>
> *****
> Professor James K. Galbraith
> Lloyd M. Bentsen, Jr. Chair in Government/Business Relations
> LBJ School of Public Affairs
> The University of Texas at Austin
> Austin TX 78713-8925
>
> See the UTIP web-site at http://utip.gov.utexas.edu
> See the ECAAR web-site at http://www.ecaar.org
> See the Levy web-site at http://www.levy.org
>
>
>