stiglz and the imf
...ision didn’t help the cause either. The only thing they could do was to borrow from the IMF for some financial assistance for an attempt to re-stabilise their economies and prevent a global effect undergoing. Thailand, South Korea and Indonesia applied for financial assistance from the IMF. They cumulatively received over 30 Billion dollars! ‘the purpose of these loans was to help establish a measure of economic stability. As with all IMF financial help, such loans came with various conditions concerning the fiscal and monetary approaches that the countries had to adopt and the financial restructuring that had to be undertaken’ (Sloman, 2000:727) 3. Summarise Joseph Stigliz’s account of the IMF Policies Joseph Stigliz, Senior Vice President and Chief Economist, the World Bank Group, in London, UK, maintains that ‘in industry, the shift towards a knowledge-based economy involves a shift in organization away from top-down hierarchical systems to horizontal structures such as networks of semi-autonomous teams’ www.electronicgov.net The main fundamental differences between the IMF and world bank are that the IMF work in a precise manner and all funds are precise relating to the macroeconomic performance indicators which are already in place. The problem is that if a country fails to meet these imposed conditions, then funding will cease until a further reinstatement of the IMF board. On the other hand, the bank is much easier to negotiate with, and even if failure after borrowing is reached, the bank is still prepared to further supplement the aid. ‘These differences may be quite confusing for developing countries policy makers’ (Mosley, Harrigan, Toye, 1991:51) For developing countries to prosper, Stigliz stated, that they were to develop their own best practices based on their history and cultural development. If a practise worked in one jurisdiction, one couldn’t just assume that it would be just as efficient in another country if just transposed. Stigliz points out that any attempts by external agencies to impose their own set of "Best Practices" for a knowledge economy, "will not produce lasting change. It will undermine people's incentives to develop their own capacities and weaken their own confidence in using their own intelligence.” www.electronicgov.net The external development agency, should just act as a vehicle or mechanism to empower these changes but by playing a full role, it will only short-circuit people's learning activities and reinforce their impotence. The external incentives may temporarily overpower the springs of action that are native to the institutional matrix of the country but that will probably not induce any lasting institutional reforms. This is an important principle to understand as, for any country to succeed, it must, by necessity, rely on its own internal understanding and the wisdom of its culture. One of these programmes was the heavily indebt poor countries initiatives (HIPC), launched in 1996. The main aim was to relieve the overwhelming debt that sub-Saharan countries were suffering. The majority of creditors would reduce debt by up to 80%, if this did alleviate the economy enough, then the IMF and World Bank would step in and try and rectify the status. The IMF wasn’t just doing a money giveaway. To be able to receive such benefits a country would have to undergo a two 3 year adjustment programme. These would resemble the following: · To reduce money wasting processes such as inflation, high interest rates and government deficit a tight fiscal and monetary policy would have to be used · Investors would have greater incentives and there would be supply side reforms to encourage a greater use of the market mechanism · To increase export and competition the currency would have to be devaluated and a more open trade policy adopted. 4. What Criticisms have been made of Stigliz’s account The IMF didn’t have the same point of view as Stigliz as on how to go about solving chronic debt in the 3rd world. Stigliz wanted a much softer approach in the policies, rather than setting a high threshold that would in turn cause government cuts to basic needs and make then very rudimentary or near non existent. The IMF wouldn’t agree on Stigliz decisions because ‘the bank and fund followed different courses of development, and at various stages of this development the prestige of one institution tended to overshadow the other’. (Mason, 1973:545) There had always been disputes on how to manage a crisis between the bank and fund, but when Stigliz brought forward such loose and vague policies, the fund appeared to be too strict in what can be regarded as a humanitarian act, and therefore started criticising the way in which things were dealt with in the bank. The fund claimed that the banks policies could not rectify the status of an endangered economy, but on the other...