Any comments?

[Brad De Long]

>Brad De Long wrote:
>
>>Get rid of the IMF and the World Bank, and "structural adjustment" 
>>becomes not gentler but harsher, financial crises become not less 
>>but more frequent, and not shallower but deeper...
>
>What evidence do you have for that? I've read papers from the IMF 
>and BIS claiming that financial crises have been more frequent and 
>more severe in the last 2-3 decades than they were 100 years 
>earlier. First World-Third World income gaps continue to widen, and 
>much of the Southern hemisphere is in chronic depression. Without 
>the IMF and World Bank to seduce and coerce the "developing" 
>countries into the system, they might be freer to pursue more benign 
>policies. What's your counterfactual here, other than intuition?
>
>Doug

Gee, you're sounding like Charlie Calomiris. Get rid of the Bank and 
the Fund, and the global market will work just fine...

Let's leave the Bank to one side. I don't understand the World Bank, 
and I never have. It was designed at a time when it was widely 
thought that international capital markets would be thin, and that 
political risk would make it nearly impossible for sovereigns to 
borrow for reconstruction and development. That's not the world we 
are in.

If I were king of the world, I would change the World Bank from a 
loaning to a granting institution, and have it focus on world poverty 
reduction. I would keep World Bank research as a kind of long-term 
planning department for the human race. But I don't see a role for 
the Bank as presently constituted.

The Fund...

Countries get into the clutches of the Fund when they have no other 
options: either New York has panicked (or their own nationals have 
panicked) and they are confronted with bad choices between high 
interest rates and large-scale devaluation, or something else happens 
and they are confronted with bad choices between high interest rates 
and large-scale devaluation.

The Fund loans them money to give them better options in the short 
run at the price of agreeing to changes in policy that make the Fund 
confident that it will be paid back. I agree that the Fund's policy 
recommendations are often counterproductive, and it would be much 
better if we had a better-funded Fund that sought what was good for 
the country rather than what maximizes the chances of repayment.

But how does removing the IMF from the equation improve the situation 
of Mexico in January 1995 or South Korea in November 1997? And don't 
tell me that in the absence of the IMF countries will not find 
themselves hitting the wall because of unsustainable policies or 
subject to sudden large-scale capital flight. You aren't Charlie...

Brad DeLong