IMF Contemplates Abandoning Universal Economic Model

Ulhas Joglekar ulhasj at bom4.vsnl.net.in
Tue Dec 21 17:23:50 PST 1999


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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