There is a fashionable amnesia in modern political and economic thought
and mainstream academia, at any rate amongst Western shock therapists [indeed
a prominent member of which was a member of the IFIAC whose work was the end
result of the Meltzer Report - Jeffrey Sachs],and most prominently amongst
free market ideologues, the erroneous and misplaced enthusiasm for linear
progression in the political, social and economic sciences. This in itself is
not a new epiphenomena. Ever since the demise of communism and the collapse
of the Left in it's most pristine form in the early 90's, there has been an
unprecedented domination in the market place of ideas at any rate in the
mainstream of Liberal orthodoxy over any former opposing view points. By
Liberal orthodoxy, I shall refer to it here to mean in both it's economic and
political connotations. It is fair to allude here and indeed would not be
remiss of me to impute a common place fallacy especially amongst Liberal
proselytisers, that with every problem that emanates from the so-called
Developing countries or the equally bland and misleading phrase "Third World"
[the latter which i strongly object to because of it's condescending and
quasi imperialist nuances] Liberal orthodoxy is what should be diagnosed and
the prescriptions of free and unfettered access to markets and trade and open
participatory gov'ts would do just the trick needed to revamp squalid and
wretched conditions.
    To be sure agonistic Liberalism did won most of the crucial arguments
that has dominated most part of the last century and it is only natural that
it at times looks benignly hegemonistic. But the lack of credible
alternatives to the Liberal progression has given allure to false conclusions
and poses as people like Fukuyama [the bloke who famously declared in
Hegelian terms the "End Of History"] did, that wherever it is applied,
Liberal orthodoxy works and it is foolhardy to resist it's historical
progression. Just as it took the Left more than half a century to realise
that no well meaning paternalist Utopian outlook can reconcile their most
cherished ideals of freedom/liberty and social justice, it might as well take
that long for Liberals to realise that Political Liberalism and Economic
Liberalism are not blood brothers and it would be foolish to attempt to
broadbrush/conform the universe with the same brand of Liberalism as
practised in say Washington. This amongst others is the tragedy gripping the
heart and soul of the IMF and many other world bodies either in volved in
global finance or development.
    Lest I give succour to anti-capitalist/Liberals online, my declared
Liberalism is the least well kept secret about me. My criticism is simply
thus that Liberals do have spines and not flaccid complacent fellows who
would rather ingratiate in the status quo than take to the streets demanding
for social justice.
    Virtually every honest and reputable economist or concerned person have
agreed on one thing about the IMF: that the IMF in it's present form is not
working and cannot be sustainable in the face of such mounting and hitherto
unprecedented criticism both within and without it's establishment. Economic
historians will record the Asian crisis of late 1996 to 1997 and subsequent
meltdown of the financial systems which eventually evaporated to Russia
sparking the worst ever financial crisis since the 1929 Crash, as the straw
that broke the camels back in the charges of ineptitude that has constantly
been levelled against the Fund. For this episode did lay bare the wisdom of
IMF medicines and diagnosis and exposed the lack of ingenious economic
rationality within the Funds bright array of some of the worlds finest
macroeconomists. Or is it?
    Anyone with the slightest interest in the history of the Asian crisis
knows that what appeared to be a real estate boom in Asia, especially
Thailand, attracted billions of dollars of "hot money" [which these days
means short termist investments in ventures where there is a quick killing to
be made]. Even non-economists like me are prudent enough to discern that in
such a case, a burst always ensues for real estate booms are the most
volatile and irrational in any given financial systems. Just ask the Brits in
the 90's with Norman Lamont or the Americans in the 80's.When things began to
implode and overheat, capital showered in, but it flowed out as well.
Speculators and swashbuckling investors made a dash for it before the
inevitable burst entrapped their gains and capital. Since there was literally
no form of restrictions on capital flight [thanks to the IMF bogeyman],
overnight what appeared to be the honey pot of the global financial system,
became a sorry tale of financial ruin.
    And so what did the IMF do when the metastasizing cancer spread to other
parts of the region? As it happened, they sent their vast array of bright Ivy
League economists scurrying to recon the enemy before it wreaks further havoc
on the global financial system. Their recommendations and indeed it's
implementation was the most bizarre thing ever to be taught to me. As a
prerequisite for any form of aid, the Fund recommended and indeed literally
imposed with the help of arm twisting from the US Treasury, fiscal and
monetary austerity measures and the rest of the usual IMF panacea that is
given to any nation that knocks on their doors for aid. Even though the Asian
crisis was not as result of gov't imprudence but a result of private sector
greed and speculation, the Fund insisted on this supply-side economics to
remedy a situation which was not inflationary but very much deflationary and
very much in Keynesian monetary economics.
    The Fund was to give the rationale behind this bizarre recommendation as
the strategy they applied to Mexico and by extension the Latin American
crisis of the 80's. Aha! Liberal orthodoxy status quo ante in Mexico suffices
for the economic doldrums of Asia. Classic IMF philosophical rationale at
work. If it works in a different place with different problems then throw
logic out of the window and apply gut feelings to contrary everything you've
been taught and recommend Paracetemol for someone with drinking problems. You
don't have to be an A+ student in economics history to know that Mexico or
the Latin American banana republic countries' economic problems were largely
due to gov't imprudence; military overspending, corruption, cronyism,
mismanagement of public funds, lack of foresight in fiscal and monetary
discipline etc, etc, and as such it made sense then to apply supply-side
economics to remedy the situation; anti-inflationary policies, fiscal and
monetary austerities, structural adjustments and the rest of them. Though
this didn't completely overhaul the Mexican problem but it led them somewhere
at least to be attractive enough for US Transnationals to relocate factories
there and consequently bring about an agreement like NAFTA and thus the
Mexican boom.
    But this hardly wasn't the case with the Asian crisis. So why did the
Fund insist on giving a dose of this medicine to virtually every Asian nation
that knocked on it's door for aid? Perhaps Joseph Stiglitz, a former chief
economist with the World Bank might have struck the right chords with his
scathing attack on the Fund in last week's New Republic magazine. Indeed as
he put it:
    "When the IMF decides to assist a country, it dispatches a "mission" of
economists. These economists frequently lack extensive experience in the
country; they are more likely to have firsthand knowledge of its five-star
hotels than of the villages that dot its countryside. They work hard, poring
over numbers deep into the night. But their task is impossible. In a period
of days or, at most, weeks, they are charged with developing a coherent
program sensitive to the needs of the country. Needless to say, a little
number-crunching rarely provides adequate insights into the development
strategy for an entire nation. Even worse, the number-crunching isn't always
that good. The mathematical models the IMF uses are frequently flawed or
out-of-date. Critics accuse the institution of taking a cookie-cutter
approach to economics, and they're right. Country teams have been known to
compose draft reports before visiting. I heard stories of one unfortunate
incident when team members copied large parts of the text for one country's
report and transferred them wholesale to another. They might have gotten away
with it, except the "search and replace" function on the word processor
didn't work properly, leaving the original country's name in a few places.
Oops. "
    I might add "PHEW!" You couldn't make that up! This might sound like a
script from a comic drama but this is a real and the biggest problem in my
view the Fund has. It is precisely because of this comical dramas and
after-effects that many reputable macroeconomists attribute to the lack
thereof a recovery in most Asian countries caught in the financial
conflagration that consumed Asia in 1996-97. But Stiglitz was not alone in
striking at IMF arrogance and "misplaced priorities". Nobel prize winning
Economist of 1981 James Tobin and Gustav Ranis Director of Yale's Centre for
international and Area Studies were forerunners in pointing out this anomaly
way back in 1998. Succinctly, they said clearly that:
    "In 1997, the IMF and the U.S. Treasury responded to Asia's currency
crises in the same way that central banks and governments had responded to
the gold crises of the 1930s. They diagnosed Asia as a victim of the "Latin
American disease" and prescribed the usual medicine. Yet, prior to 1997, the
Asian tigers appeared to be model economies by IMF criteria. They were
generally running budget surpluses, and money growth was moderate. Inflation
rates were low, and saving rates high. Some countries, notably South Korea,
had incurred large volumes of mostly short-term foreign debt. Unlike Mexico's
dollar-guaranteed debts, these were almost all private debts. As the IMF
noted, these countries were running trade deficits. But, unlike Mexico, they
were not importing for consumption. It is quite legitimate for developing
economies to borrow abroad for investments at home, though some of South
Korea's recent investments apparently were ill-advised prestige projects in
heavy industry, land, and real estate. The key problem was misallocation of
private credit, not governmental profligacy. "
    Interestingly enough, the central conceit of the Meltzer Report is on
something totally different. It seemed to me the members of the Commission
think the problem of the Fund is that it is doing too much and overlapping
into territories that are distinctly not within it's mandate or purview. And
as such have lost sight to this great anomaly of the Funds operations. What
Stiglitz et al have pointed out are common place wisdoms. Even way back in
1982, the Brandt Commission on the North - South divide headed by Willy
Brandt which noted explicitly then that:
    "the IMF's conditionality be made more appropriate to the situation of
the borrower, especially with respect to countries capabilities to borrow in
commercial markets, their needs for balance of payments support from official
agencies, and their abilities to correct over given time periods. In
particular low-income countries with limited access to market borrowing,
heavy dependence on official agencies for balance of payments support, and
restricted capacity for rapid economic transformation, should have far
greater availability of low conditionality finance when temporary deficits
arise due to circumstances beyond their control."
    In the light of all these wiseacres, why then is Fund Establishment
arrogantly holding it's angle on it's economic diagnosis and prescription? As
i tried to explain in my introduction, the collapse of the Left in it's
pristine form and the apogee of Liberal orthodoxy has unleashed an economic
doctrinaire of Hayekian manifestation that worships unabashedly at the alter
of supply-side economics and de-regulation. Any thing contrary to this Wall
Street type of view belongs to the past or the old loony Left or as some kind
enough of to remember Keynes put it, it's the old discredited Keynesian
demand side economics. This view is very pervasive amongst the Fund milieu
hence the arrogance and lack of foresight in the Fund and most of the things
that emanate from it.
    What I did find interesting about the Meltzer Report though is that it
used very radical methods to arrive at very conservative conclusions. To the
cursory untrained eye, the Report is radicalism re-invented in an age of
Liberal consensus and complacency. For example it proposed that:
    "The IMF should cease lending to countries for long term development
assistance [as in Sub-Saharan] and for long term structural transformation
[as in the post-Communist transition economies]." After lifting up this
stick, it dangled in front of those countries it targeted a carrot. Indeed it
wrote: "The IMF should write off in entirety it's claims against all highly
indebted poor countries [HIPCs] that implement an effective economic
development strategy in conjunction with the World Bank and the regional
development institutions."
    Yet the Report made no or little mention of the enormous vacuum that
would ensue from the IMF's commitment to the aforementioned and the rolling
back of it's frontiers. It didn't envisage of a well thought out
transitionary phase when it would make sense to delineate the boundaries of
international finance and development. It merely chafed the surface of this
defect by proposing a that the new rules "should be phased in over a period
of five years. If a crisis occurred in the interim, countries should be
allowed to borrow from the IMF at an interest rate above the penalty rate"
Here we go again; the punitive penalties. By default it would be fair to
infer from this stated declaration that the Funds withdrawal from long term
lending would mean more greater role for the regional development agencies.
But hear this contradictory message:
    "Private sector involvement by the development institutions should be
limited to the provision of technical assistance and the dissemination of
best practice standards. Investment, guarantees, and lending to the private
sector should be halted."
    Precisely what would a Sub-Saharan nation-state like the Gambia do in
such a situation where the chances of financing new and upcoming
entrepreneurs getting investments from a non-existent commercial sector?
    The rolling back of the frontiers or the abolition thereof of any form of
regulatory body in global finance has long been a dream of free market
ideologues like the Neo Liberals associated with Reagan and Thatcher in the
80's and most recently the hawk-like advances of protectionists and
isolationists within the US political and economic elites. So it is not the
least surprising to see the Meltzer Report apply such Hegelian tactics of
using radicals methodology to arrive at such conservative conclusions.
    To it's credit, it had the foresight or rather the sense of fairness to
elucidate that total debt write offs are a prerequisite to developing nations
combatting and or eradicating completely poverty and reducing illiteracy. It
also made a point in trying to dis-entangle sometimes the overlapping nature
of these international institutions. It made a good point of making
preparation of a greater role for AfDB to replace the World Bank's [which it
proposed to be re-named World Development Agency] activities in aid in
Africa. And surprisingly called for the US gov't "should prepare to increase
significantly it's budgetary support for the poorest countries if they pursue
effective programs of economic development."
        To the charges of  the Fund's secrecy, lack of accountability, the
case of looking into the lack of restrictions in capital flight during
financial meltdowns that are as a result of the same capitals being scurried
away to other destinations thus bringing financial conflagrations, the case
of the punitive interest charges that some HIPCs had to endure, arrogance,
the archaic nature of selecting it's Managing Director, it's lack of taking
at heart serious and well heeled criticism and giving a listening ear to the
developing nations it is supposed to be helping, the Meltzer Report remained
fairly and squarely impervious. It didn't raise this crucial things about the
IMF and indeed the rest of the global financial system.
    At this stage of the debate of the Fund and the World Bank, there are two
positions Liberal moderation must avoid at all costs. Complacency in the
status quo or giving allure to the poses of both the free market ideologues
and anti-capitalist campaigners in their bid to see to an end to the Fund and
her sister institutions. What must be done now is to realise that the Fund in
it's present form and shape represents a bygone geopolitical and economic era
and it would not be enough to accept it's inherent arrogance, lack of
open-ness and in the words of Tobin and Ranis, it's "misplaced priorities".
    Contrary to abolitionists claims, without the Fund, there would be an
enormous vacuum at the heart of the global financial system whose
ramifications is  inconceivable. As the economists Tobin and Ranis lucidly
pointed out:
    "Some critics of the IMF's bailouts want to abolish the IMF. Free-market
ideologues have faith that completely liberalized international financial
markets will handle all shocks optimally, if only governments and
international institutions will stay out of the way. No convincing evidence
or logic supports this faith. Currencies are not market institutions, and
cannot be. Critics from the opposite side regard the IMF as an instrument
serving multinational capitalism at the expense of ordinary people throughout
the world. We believe that the world needs an IMF, just as nations need
central banks, and that the IMF needs loans of hard currencies from its major
members. The lesson of current events is that the IMF should stick to its
original mission, saving its members from disasters due to short-term
illiquidity. The World Bank and other international lenders are better suited
to handle long-run structural and developmental issues"
    Just like Tobin and Ranis, i hope and pray such Liberal moderation wins
the day. For without the Fund and the World Bank it would be conceivable to
presage a global system of protectionism and isolationist proclivities the
world can certainly do without.
Hamjatta Kanteh


hkanteh

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