IMF Contemplates Abandoning Universal Economic Model

[Ulhas Joglekar]

IMF Contemplates Abandoning Universal Economic Model
3 March 1999
Summary
Speaking at a financial symposium in Tokyo, Stanley Fischer, First Deputy
Managing Director of the International Monetary Fund (IMF) said in the
future the IMF may consider "for individual developing countries, whether
there is some other regime other than free-floating exchange rates or
currency board arrangements." His statement, while seeming to concur with
the proposals of several Asian nations, demonstrates a strong divergence
from the policies of the United States. What may be arising within the IMF
and other "global" financial bodies is a fundamental policy debate over the
foundation of these very institutions – the concept of a truly global
economy.
Analysis
During a World Bank symposium on global finance and development in Tokyo on
March 2, Stanley Fischer, First Deputy Managing Director of the
International Monetary Fund (IMF) made a revealing statement. In discussing
foreign exchange policies in developing nations, Fischer said he suspected
global financial institutions would, "after a while," consider "for
individual developing countries, whether there is some other regime other
than free-floating exchange rates or currency board arrangements." By
admitting that the IMF is considering rethinking its one-plan-fits-all
policy of financial reform, Fischer’s comment offers insight into a growing
debate within the IMF.
In the past few days, Fischer has made several seemingly contradictory
statements. On March 1, Fischer said that fixed foreign exchange plans were
more susceptible to financial crises than free-floating ones, yet the next
day he said there may be a need to consider, on an individual basis,
alternatives to free-floating currency schemes. Fischer also said, on one
hand, that there was "room for a more expansionary monetary policy to be
implemented in Japan," while on the other hand, "Determined policy efforts
and their sustained implementation, which are now underway, should ensure a
strong comeback for the Japanese economy."
Along with these wavering comments, Fischer has also announced potential
reforms underway at the IMF. These changes, including the formation of a new
monetary fund in the style of Japan’s Miyazawa Fund, "do not," according to
Fischer, "amount to the creation of a radically new international system:
rather they represent an adaptation of the existing system." Yet to consider
a revision of the IMF’s basic prescription for economic restructuring of
borrowing countries to allow for multiple contextually-driven economic
models, strikes at the heart of the current international economic
framework, for it challenges the fundamental presumption that there is a
global economy.
The IMF has long been considered, due to its financial dependency, as a tool
of American financial policy in the world. The U.S. idea of a global
economy, operating under U.S. rules and examples, laid the groundwork for
the IMF treating each individual country’s symptoms, regardless of the
underlying cause, with the same cure. The IMF, therefore, has prescribed the
same solution – strict austerity measures, deep financial reforms,
free-market ideals, and free-floating currencies, no matter the social
cost -- for countries as diverse as Indonesia, Brazil, Algeria, and Russia.
While the U.S. remains a strong proponent of the idea that there is one
worldwide economic system and one solution, which is based on its own model,
several countries in Asia and elsewhere have countered that view.
Both Japan and Malaysia have called for a rebuilding of the international
economic system. Japanese Vice Finance Minister Eisuke Sakakibara stated
bluntly, "We need to fundamentally change the international financial
architecture." The most common complaint among Asian nations has been that
the IMF fails to take into consideration regional social and cultural
context when implementing reforms. What is emerging is a delineation between
the U.S. backed idea of an all-encompassing global economy, and the idea
that, in fact, there are regional economic systems that interact with one
another. This second idea shifts the focus away from implementing the U.S.
model throughout the world, and instead tries to bridge the gap among the
regional economic systems.
The IMF, already having admitted some mistakes in its Asian policy, is now
reviewing its fundamental structure. Considering options to free-floating
currency regimes for individual situations mirrors comments made recently by
Asian businessmen and politicians in regards to Malaysia’s capital controls.
The call for a regional fund based on the Miyazawa Fund sounds very similar
to Japan’s proposed Asian Monetary Fund (AMF), which the U.S. has repeatedly
opposed. After the AMF-style fund, will there be an African Monetary Fund, a
Latin-American Monetary Fund, and/or a European Monetary Fund, thereby
circumventing the need to rely on U.S. money? The groundwork for a debate
over the acceptance of regionalized economies is being laid down within the
very body that has previously been the agent of implementation for the
globalized system.
As the debate within the IMF continues, and Japan and Malaysia lead the
calls for a restructuring of the world’s economic system, the fundamental
question of whether there is a global or a series of regional economies will
become more prevalent. The first major instance of this debate will likely
surface later this week, as Asian aid ministers and donors meet in Sydney on
March 5. Among those attending will be representatives from the World Bank,
IMF, and the Asian Development Bank. Already on the table, according to
Australian Foreign Minister Alexander Downer, will be medium and long-term
measures to tackle the social impact of Asia’s crisis and reforms.

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