Any comments?

Brad De Long delong at econ.Berkeley.EDU
Mon Apr 10 21:03:36 PDT 2000



>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



More information about the lbo-talk mailing list