(HERALD, AFP) Financial crisis: IMF gives different remedy to rich countries
Financial crisis: IMF gives different remedy to rich countries - AFP.WASHINGTON. Ten years after the Asian financial crisis and its painful austerity cure, the IMF is prescribing the opposite medicine for rich countries fighting off recession: flush the system with liquidity. Lower interest rates, tax cuts and even the use of public funds to help ease conditions are not being ruled out as a financial crisis spreads from the United States around the world.
"Central banks in several advanced economies —notably the United States — have appropriately eased policy rates," Simon Johnson, the IMF chief economist said on Wednesday. They "may need to continue easing until their economies find a firmer footing," he said at a news conference. For example, he said, the US fiscal stimulus — a US$168-billion package — "looks likely to provide timely support" in the downturn.
And "the use of fiscal space" to cut taxes is recommended whenever possible, he said. Dipping into state coffers to avoid bank failures is not taboo either. "Public money can be used and is being used in a sensible way," he said, citing the US government-backed bailout of Wall Street investment bank Bear Stearns. The moral hazard of rewarding excessive risk-taking is decided on a case-by-case basis, he stated. "There is no such thing as a perfect rescue operation," Johnson added.
When it was advising emerging countries, in Asia and later in Latin America, the IMF had taken quite a different tack. To lower the cost of credit, to fly to the rescue of banks that had overly indulged in speculation and to unleash stimulus packages was considered the height of heresy. The IMF preached discipline in public accounts, the elimination of subsidies, and the power of the market to separate the wheat from the chaff. Bankruptcies were part of the cure.
"It was the (Joseph) Stiglitz point in the 1990s that at least for some countries, like (South) Korea, the IMF was pushing too much austerity," recalled Nancy Birdsall, president of the Centre for Global Development, a Washington think tank.
Stiglitz, a 2001 Nobel laureate who was the World Bank chief economist during the Asian crisis, "objected particularly to the recommendation that interest rates be raised to create confidence in the currency," Birdsall said.
The new managing director of the IMF, Dominique Strauss-Kahn, said the change of focus "shouldn’t be exaggerated."
"One must deal with the questions that one has to deal with in resolving the problem, which faces us, but also by paying attention to collateral damage," he said in an interview.
What is more, "the crisis we are facing today is a crisis that is not a currency crisis in the traditional sense of the word," the former French finance minister added.
The context is different, agreed Domenico Lombardi, president of The Oxford Institute for Economic Policy.
"This crisis is not originating from the macroeconomics of the country but more from financial institutions," he said. — AFP.
posted by MrK @ 3:30 PM
2 Comments:
The context is different, agreed Domenico Lombardi, president of The Oxford Institute for Economic Policy.
"This crisis is not originating from the macroeconomics of the country but more from financial institutions," he said. — AFP.
'The context is different'.
What a load of ...
First of all, the crisis doesn't come from financial institutions. It comes from the Republican administration that has been in the forefront
of deregulation of business, including the mortgage industry.
It is a blatant failure of the free market ideology.
Secondly, there is no way the impact of this is limited to the financial sector. It goes to the hart of the consumer economy, and all the business consumers patronize are going to be hit.
Today, even General Electric reported dramatically lower earnings.
Austerity in developing countries never made sense. Access to capital, government initiatives, etc. were much better suited than free markets and austerity - so guess what they recommend for themselves.
From the '50 Years Is Enough' mailing list:
http://www.eurodad.org/whatsnew/reports.aspx?id=2206
Critical conditions: The IMF maintains its grip on low-income governments
09 April 2008
Faced with strong criticism for its expansive and erroneous use of conditionality, and in the wake of a financial crisis, the International Monetary Fund (IMF) approved in 2002 a set of guidelines to inform its use of structural conditionality. The Conditionality Guidelines committed the Fund to reduce the overall number of conditions attached to Fund lending and ensure that those attached respected and were drawn from nationally developed poverty plans in recognitions that developing country ownership is instrumental for successful development.
The IMF’s own Independent Evaluation Office (IEO) issued a study in January 2008 which concluded that the Fund dramatically increased both the number of structural conditions and their intrusiveness in recipient countries’ domestic affairs.[i] However, this evaluation only covered a limited period of time after the Conditionality Guidelines were approved in 2002 (it assessed operations approved between 1995 and 2004).
This report by the European Network on Debt and Development (Eurodad) goes further, assessing more recent IMF loans and going into more detail on the content of the loans. This report looks at the effectiveness of the Conditionality Guidelines in reforming IMF conditionality during the five years since the Guidelines were approved. Based on IMF figures, Eurodad examines the share of Fund structural conditions which prescribe highly sensitive and intrusive policy reforms.
This report finds that since the Conditionality Guidelines were approved, the IMF has not managed to decrease the number of structural conditions attached to their development lending. Moreover, the Fund continues to make heavy use of highly sensitive conditions, such as privatisation and liberalisation. Eurodad’s analysis finds that a quarter of all the conditions in Fund loans approved after 2002 still contain privatisation or liberalisation reforms.
The IMF conditionality streamlining initiative was supposed to decrease the average number of structural conditions and increase ownership of national governments. It also introduced certain tests for whether IMF conditions were necessary, including a test of “criticality”. This report analyses the IMF’s own figures to demonstrate that no further progress has been made since 2004, and casts serious doubts about the genuine commitment of the institution to streamlining its structural conditionality and speed up the application of their own conditionality policy. Faced with in-depth structural reforms of its own, the Fund should take this opportunity to speed up implementation of their Conditionality Guidelines and take further steps in the streamlining initiative.
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