Sunday, April 13, 2003
IMF Has No Recovery Road
Map
By
Timothy A. Canova
When the
International Monetary Fund and World Bank hold their spring meetings in
Washington, D.C. this weekend, the expected crowd of protesters will be much
thinner than in recent years. With war in Iraq and terrorism threats on
heightened alert, many critics of these international financial institutions
will prefer to stay home rather than have their patriotism and judgment called
into question.
But
whether the war concludes quickly or bogs down into a long and difficult
occupation, the Bush administration needs a pre-emptive foreign economic
strategy, one that addresses potential economic problems before they flare
into crisis - a strategy that promotes employment
and education, is based on secular principles and is implemented on a
multilateral basis.
Now is
not the time to push such strategically important countries as Turkey,
Pakistan, Indonesia and the Philippines with IMF-prescribed austerity measures
that often result in rising unemployment and budget cuts for health and
education programs. These countries already have high levels of unemployment,
as well as large, restive Muslim populations. In an age of suicide bombers and
in a world threatened by wayward chemical and nuclear material, these mass
unemployed can soon become dangerous weapons of mass destruction.
In
Pakistan, nearly a million boys and young men are now enrolled in religious
training schools known as madrassas that preach radical Islamic fundamentalism
and militant jihad. This compares with a public school system that now
educates some 1.6 million Pakistani children. As wealthy Saudis, acting out of
religious conviction, increase their funding of Pakistani madrassas, the best
the IMF can do is preach the free market religion of smaller government and
fiscal austerity, a policy mix that is sure to result in further cutbacks in
public education funding in Pakistan and other poor countries.
Unfortunately, officials in Washington and at the IMF have been slow to
realize we are in danger of losing a religious war because of failing social
and economic policies. It is no accident that the Islamic fundamentalist party
that swept to power in Turkey last year is called the Justice and Development
Party. A central tenet of Islam is the pursuit of social and economic justice.
Liberal democracies are now confronted with the challenge of delivering
economic hope to Islamic societies that have been decimated by the confusing
forces of globalization.
During
the Clinton administration, the World Bank's chief economist Joseph Stiglitz
publicly criticized the IMF agenda of conditioning financial assistance to
developing countries upon fiscal and monetary austerity, liberalized capital
flows and privatization of state-owned enterprises. Stiglitz complained that
the IMF was imposing a "one size fits all" solution on all countries without
regard to the enormous social cost of austerity
measures.
Stiglitz
was forced to resign from his World Bank office, but was awarded a Nobel Prize
in Economics only a year later. The purging of Stiglitz revealed the lack of
transparency in IMF and World Bank decision-making processes and the way
dissent is regularly suppressed within both
organizations.
Malaysia
was one Muslim country that ignored the IMF agenda by imposing restrictions on
currency and capital outflows to protect itself from the currency contagion
sweeping East Asia in the late 1990s. Eventually the IMF was forced to concede
that the Malaysian experiment had succeeded in protecting that country from
the worst effects of the contagion. In contrast, Indonesia experienced a
sharper depreciation in its currency, higher interest rates, and a much
sharper economic downturn. Not surprisingly, Indonesia has also seen a
significant rise in ethnic and religious violence, as well as Islamic
terrorist activity.
Kenneth
Rogoff, the IMF's present chief economist, recently co-authored a "sobering"
report concluding that there is no clear proof globalization helps poor
countries. The study found that financial integration may actually increase
the risk of financial crisis in the developing world. In what sounded like
tardy vindication of Stiglitz, the report was not able to come up with a
"clear road map" for how countries can open themselves up to foreign
investment, including highly liquid investments in portfolio capital, such as
foreign exchange, stocks and bonds.
While
the IMF has periodically acknowledged flaws in its program of capital account
liberalization, it has been far less forthcoming in dealing with criticism of
its prescribed medicine of fiscal and monetary austerity for developing
countries in balance of payments crisis. This is undoubtedly because any
relaxation on austerity would require significant increases in foreign aid to
permit those countries to continue importing during any adjustment period.
Such
intransigence about even discussing the basic premises underlying the IMF
adjustment model has led some critics to call for abolishing the IMF and World
Bank. But that is neither a realistic nor desirable alternative. Reform of IMF
policy is a more worthy goal.
At the
University of New Mexico, after a group of activist students marched on the
main administration building to protest investments in World Bank Bonds, the
university created a committee that eventually recommended that UNM prohibit
its endowment from investing in World Bank Bonds. Last month, the UNM Board of
Regents, headed by a Wells Fargo bank president, accepted that recommendation,
making this the first university in the country to formally renounce
investments in World Bank Bonds - until such time
as the World Bank demonstrates that it has significantly reformed its
substantive policies and decision-making processes.
Multilateralism has already suffered enough over the course of the past
several months. If liberal democracies continue to ignore such basic human
needs as work and schooling in poor countries, and instead continue to rely
exclusively on liberalized markets and a demoralized private sector, we will
have a future of increasing fear and
insecurity.
Timothy A. Canova is a law
professor at the University of New Mexico School of Law, where he teaches
International Business and Trade
Law.