Surprisingly, analysts and the media in India have paid little attention to the views of a person who was, until recently, a key player on the international economic scene. It isn't often that we witness the unusual spectacle of the erstwhile chief economist of the World Bank savaging his former cohorts in the International Monetary Fund (imf), the other half of the duo that virtually runs the world economy.
Now, Joseph Stiglitz isn't an ordinary exponent of the dismal science. During his professional career spanning nearly four decades, he has been associated with the most prestigious groves of academe: Yale, Cambridge et al. When JS joined the World Bank in 1997 as its economics supremo after three years as an advisor to President Clinton, he brought to his job not only an alpha-plus academic record but also proven experience as a policymaker.
The principal issues in his critique are four. The initial stricture is that the imf is arrogant and insensitive to the views of the developing countries, it's secretive and "insulated from democratic accountability" and its prescribed remedies aggravate the economic conditions of countries already in distress. These charges have been made repeatedly by opponents of the imf philosophy but they have, almost invariably, been dismissed by the media and some academic circles; the imf's formidable agitprop machinery also swings into action and snide comments about "conspiracy theories" of anti-reform Luddites ensure that such discussions are swept under the carpet. It's less likely after JS's mea culpa; we now have detailed admissions by a key mandarin in the Bank-Fund command structure on how the imf, in cahoots with the US Treasury, systematically destroyed the economies of many developing countries.
To cite specific instances, JS recounts how the imf applied the same medicines during the East Asian crisis in '97 as it had done in South America in the '70s. The contrast between the two situations was glaring; the East Asian states had just recorded three decades of spectacular economic growth during which incomes, health standards and literacy surged and poverty declined drastically. Their only mistake was to have liberalised their financial and capital markets under imf pressure; they didn't need more funds, since their own savings rates were nearly 30 per cent. The foreign capital that had flown in was essentially short-term and sought investment opportunities that would bring instant high returns. In Thailand, it "fuelled an unsustainable real estate boom".
When the real estate bubble burst, the domino effect started and the Thai economy went into a tailspin, followed soon by other states in the region since their economies are closely linked. imf babus recommended the usual cough syrup - higher interest rates and reduced government expenditure. The problem here was not imprudent governments but reckless private sectors, particularly the banks and finance companies. The consequences of the imf diktat: bankruptcies, defaults and overall economic shrinkage, culminating in a recession in the whole of East Asia.
JS recalls his desperate efforts to rein in the imf stormtroopers. Everywhere, he found disingenuousness, obfuscation, stonewalling and worse, even though he sought the help of his former associate, Stanley Fischer, the Fund's deputy MD. He encountered not only sheer incompetence among the imf staffers but complete lack of transparency in their functioning - the standard alibi proffered to him was pressure from the G-7. The culmination of all this dissimulation and sophistry is found in the secret covenants the imf imposes on some of the hapless borrowing countries. This, JS says, amounts to complete negation of the principles of openness, consensus-building, democracy and respect for people's sovereignty that the Fund officially espouses.
For Indians, who despair about the megalomania and non-accountability of our permanent bureaucracy, this is home territory. According to JS, the performance of the imf cadre is never monitored and they operate as a self-sustaining and self-aggrandising coterie - distinct shades of Raisina Hill here. Even the number-crunching is often poor; the mathematical models the imf uses are "frequently flawed". JS recounts Washington anecdotes of imf missions who arrived in aid-seeking countries with their reports already finalised; wholesale sections from earlier reports on other countries were transplanted. The farce got exposed once when the "search and replace" facility in computers malfunctioned, and left the original countries' names in a few places.
The Stiglitz critique deals with other principal issues in the transition from command economies to market-driven systems. The importance of institution-building is stressed. Without legal frameworks that enforce contracts, and regulatory agencies that promote competition and safeguard consumer interests, a market economy can't develop on a sustainable basis. Mere sale of psus, without fostering better value for the citizens, is a recipe for disaster. JS delineates the Russian experience when psus were handed over to Yeltsin's mafia, who promptly parked the proceeds of their loot in Cyprus banks (the Swiss ones having long become pass).
In India, too, we are embarking on large-scale privatisation. Initial attempts haven't been encouraging. Contrary to the Centre's assertions, the sale of Modern Foods to Hindustan Lever doesn't look very kosher. The exercise should have been undertaken in the glare of public scrutiny - as JS says, there's no substitute for openness. Finally, it's the outrageous prescription of shock therapy for transitional economies that must be exposed; most of the time, there is enormous shock and very little therapy. And, invariably, the proponents of this doctrine are the fat cats who were the main beneficiaries from the previous command economy.
Now that the oracle has spoken, can our mandarins ignore the warning signals from a former colleague in the global corridors of power?
(The author is a corporate analyst and member of the DSE)