Free Essay About Globalization And Its Discontents
According to Stieglitz, an economist, the various interventions by IMF worsened the financial crisis of the late 1990s in East Asian in a number of ways. The interventions were not designed to help or save the situation in East Asia. From his book, Globalization and its Discontents, Stigliz argues that before the crisis and precisely the previous three decades East Asia was very stable and growing faster, it had also done very well in reducing poverty. It was able to withstand the various challenges associated with market economies which surprised many to an extend that it was referred to “East Asia Miracle” besides doing good in savings and investing very well (Stiglitz, 2002). Even the IMF itself had predicted a strong increase in its growth. However, due to the crisis that happened in late 1990s, East Asia suffered a great setback in its development, governments involved were faced with a lot of criticism of failings from many international financial institutions, IMF included.
Although Stigliz agrees with the fact that the countries involved also played a role in the causes that lead to the crisis through various mistakes in policies, the one to blame for having played the leading role in causing and further exacerbating the crisis is the IMF, contrary to its intended purpose when it was founded i.e. to prevent and provide solutions to such crises (Stiglitz, 2002). On the case of East Asia, according to Stigliz, IMF was rather part of the crisis instead of being the way out to the extent of many people abroad and particularly in America proposing changes in its policies or total change of the entire institution. In fact, IMF has admitted a number of its mistakes such as agreeing with the dangers that are brought about by allowing excess liberalization of the capital market, but then this admission has already been overtaken by events and cannot be of any assistance the countries that were affected.
In reference to Stigliz arguments, IMF interventions worsened the crisis through the following ways: The IMF policies as well as the U.S. treasury policies passed in the late 1980s that lead to the liberalization of capital accounts saw most East Asia countries being hard-pressed to also liberalize their capital accounts as it was considered a way that would make the East Asia region develop much even faster despite the fact that most of these countries had more than enough capital due to their high rates of savings and did not require any supplementary capital (Wade et al., 1998). This liberalization of capital accounts, lead to great changes in transfer of funds since the normal status was totally reversed in that there were massive outflow of funds compared to the little inflow because investors transferred their funds to other banks abroad, an example of a country that bear the brunt of these changes in inflows and outflows was Thailand. This liberalization of capital accounts by IMF without clear evidence that it would bring the anticipated growth, but with great risks which were well known to pose to developing countries according to Stigliz was the onset or beginning of the crisis that was bound to happen in East Asia region courtesy of IMF policies.
Secondly, at the beginning of the crisis due to misdiagnosed problem that was facing East Asia by IMF, it went ahead and recommended a fiscal policy that was excessively severe to the affected countries, by recommending that the countries should have an unbiased budget. The fiscal policy it had suggested made the recession extremely bad than it could have be because according to Stiglitz, any economy facing recession must not include a balanced budget in carrying out its budgeting (Stiglitz, 2002). IMF also made a serious mistake by failing to identify the vital relations between the policies followed in different countries; the policies it had recommended ruined the relationships between neighboring countries thus, leading to spread of crisis from one country to another in East Asia due to reduction in imports. IMF also failed to contain the crisis but instead worsened by forcing the affected countries in East Asia to increase interest rates. This Stiglitz argues was going to have a long lasting impact on economic development of East Asian countries.
On the argument that besides its stated agenda of promoting stability and growth in LDCs, IMF has another agenda, Stiglitz means that the failures we often see by IMF failing to avert various crises in developing countries is not accidental but rather it is by choice with an aim of achieving some other missions which are always unknown to the public (Stiglitz, 2002). This IMF’s other agenda according to Stiglitz is that IMF is indirectly working to serve the interests of financial communities which are the G-7.
IMF does so by creating crisis in developing countries for example those which were witnessed in East Asia countries such as Thailand, India and Korea. Stiglitz argues that IMF is encouraging bad loans to be lent to developing countries by availing money to governments of developing countries which are then used in bailing out creditors who in most cases happen to be from the Western. They do so by arguing that their interventions help countries avoid defaulting on their loans from Western creditors so as to ensure they access credit when they need it again in future. IMF has also ensured that these western creditors enjoy a lot of profits from their loans by providing large sums of money which are used to sustain exchange rates at flawed levels for a little time through which foreigners utilize to move their money away from that country. This is aided by liberal capital markets which IMF has made mandatory for the developing countries.
Stiglitz, Joseph E. Globalization and its Discontents. New York, 2002.
Wade, Robert, and Frank Veneroso. "The Asian crisis: the high debt model versus the Wall Street-Treasury-IMF complex." New Left Review (1998): 3-24.