Top critical review
8 people found this helpful
Good insight to economic policies, no use of data
on 25 May 2007
Until I read this book, I did not exactly understand what was wrong with IMF policies and its breath taking record of failures at many emerging markets. Dr. Stiglitz can help you understand. This book goes over the last 20 years of IMF failures in Russia, Eastern Europe and South East Asia and points out a number of wrongdoings:
1. IMF was usually uninterested in working through the democratic processes of the countries to reach the economic policy decisions. IMF used the power of its loans to push down their throats, the policies that IMF thinks best.
2. When a country is going under a recession, IMF usually forces them to tighten the belts. This policy is almost never implemented in developed economies but IMF forces it on developing countries. It usually ends up deepening the recession.
3. IMF helps the international lenders get their money back (not fully of course) in case a developing country falls into bankrupcy. This is against the risk-reward relationship defined in the theory of finance. The reward they get through high interest rates carries less risk due to the possibility of IMF intervention. This creates irrespossible lenders at times.
4. The unfair trade laws are hurting many poor countries around the world and are creating a discontent about globalization, which actually helped many other poor countries to get their people out of poverty. IMF forces market and trade liberalisation on developing countries without a consideration of how they will be impacted by the existing, unfair trade laws in developed countries. Sometimes, IMF creates a one-way working system in favour of developed countries, .e.g. developed countries still protect their markets for agricultural products, where developing countries may have an advantage.
5. And lastly, there was not a consideration of a gradual plan of reforms suggested by IMF to the countries. It was mostly a step function change being forced on them, which usually collapsed the existing system.
My overall take from this book is that every country should reach its own economic policies by using the democractic process and IMF, as an international institution, should encourage not hurt this.
One dissappointing thing about this book is that there is almost no use of economic data. He almost only talks about policies and economic history. He ignored the use of numbers to justify the wrong/ right policies. It is hard to argue with a Nobel Prize winner about his methods but it is my humble opinion that the book would have been more colorful and convincing had he used numbers.
After this book was written, there has been some success stories of IMF interventions, e.g. Turkey. However, reading the book, I got the impression that IMF's success in Turkey was not contradictory to Dr. Stiglitz's claims. Turkey was already at a stage where market forces were semi-working, the country was trading with the world, especially with EU for a long time and the missing part was the building of strong and independent economic and political institutions. Due to corrupt governments, the institutions were not built. Market liberalisation was not forced on Turkey because it was already there for some time. IMF, by using the attractiveness of cheap loans, forced Turkey to come up with a reform plan of building institutions. EU negotiation process was also complimentary to the IMF economic support. It worked well!