Hamjatta,
Thanks for an excellent piece of work. After reading this, I cannot help but
wonder why you at times waste your precious brain cells arguing with some of
the people on the list. I feel really proud reading this. I can attest to
the observations made in your piece about the ineptitude of these "IMF
Missions". When they would come to The Gambia during the Jawara era, Central
Bank drivers would meet them at the airport with the "numbers" you alluded
to. They would be driven to the "five star hotels" with bundles of papers
which I presumed they gleaned as they sipped their coffee. The next morning
they would arrive at the Central Bank and conduct series of meetings where
they would be presented with more "numbers" (some of which were fabricated).
They would go to places like the ports authority, customs and albert market
(to gather information on exchange rates) before retiring to their luxurious
hotels. If my memory serves me right, I think they used to spend five
business days (at most) in The Gambia every quarter.
In my humble opinion (as a non-economist, too) I thought one of the most
serious economic problems we had then (and I think we still face) pertained
to the interest rates commercial banks were charging for their loans. The
interest rate spread we had was ridiculous. You had commercial banks paying
5-8% to depositors and charging their customers 23% for the loans they give
out. At the same time, The Central Bank and the Government Treasury were
paying 15% on their Central Bank bills and Treasury bill, respectively. So
right there, the commercial banks had no incentive to lend money to ordinary
Gambians. And in the few cases where they lent money to businessmen in The
Gambia, they were just encouraging inflation because these businessmen would
want to price their goods high enough in order to be able to afford the high
interest rates. But just like you suggested, instead of tackling problems
like these and many more peculiar to The Gambia, these so-called economists
will come with their Washington Consensus (paracetamol) prescriptions and
give us the same pills they would give to a country like Ghana.
As you so eloquently demonstrate, a lot of the blame for these economic
problems we face, rest right at the doorsteps of these mammoth institutions.
But some of the blame for the 'hot money' phenomenon also need to go to the
private banks that lend out the money and some of the corrupt governments
that help attract this money. Everyone should know that when high interest
yielding short term deposits are used to finance long term real estate
loans, this is a recipe for disaster. The governments and their citizens
that accepts these deposits and the big banks that give them the funds both
know that this is a problem. However, the banks (mainly U.S. multinational
institutions) know that the U.S. would not stand by and watch while they
collapse. They know the U.S. will use it's weight and ensure that the IMF
bail them out of their risky (highly profitable) ventures in these
developing countries. IMF always come in the guise of bailing out the
developing country. When in actual fact, they are bailing the Chase
Manhattans of this world and their depositors; and by extension, the U.S.
financial system. I say, since these banks reap all the benefits if these
risky loans come through, they should face the music if the corrupt finance
ministers of Mexico cannot make good on their obligations.
A lot of blame also has to go to the countries that try to attract these
forms of financing and end up using the money on the wrong projects. At
best, they show a lack of understanding of these types of financing. Worst
still, the borrowers of 'hot money' are usually only interested in their
immediate goals and have no regard whatsoever for the long term economic
well being of their countries. I recognized that the focus of your article
was not an exhaustive diagnosis of the 'hot money' issue, but I just thought
I mention that we in the developing world also should share part of the
blame.
Again, I salute you for your excellent piece and this just helps to
reinforce my belief that WE MUST GET RID OF YAYA BY ANY MEANS NECESSARY, so
that people like you will be in a better position to contribute to the
development of our beloved country.
KB
>From: Hamjatta Kanteh <[log in to unmask]>
>Reply-To: The Gambia and related-issues mailing list
><[log in to unmask]>
>To: [log in to unmask]
>Subject: On The Meltzer Report: In Defence Of Moderation
>Date: Mon, 8 May 2000 11:48:45 EDT
>
> 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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