Domination of market fundamentalists

Domination of market fundamentalists

Yvan Magain, Economist, Brussels

If you look back over the last 20 or 30 years, nearly 100
countries have faced a monetary crisis. Over the last five years,
almost all emerging countries have gone through the same crisis:
Thailand, South Korea, Indonesia, and now Argentina. No economist
is predicting an end to this recurrent crisis; they just wonder
which nation will be next.

The world is going through a period of great instability,
resulting from high prices and high unemployment rates. Everybody
acknowledges that trade agreements are unfair. The North imposed
on the South the opening of its market doors, but has kept its
own shut to the South, i.e. in the fields of agriculture and
textiles. Globalization is not working, because the game rules
were set solely by industrialized countries, or worse, by some
private conglomerates within these countries to protect their own
interests. Therefore, the needs of developing countries were
never met and the eradication of poverty remains a dream.

The International Monetary Fund (IMF) experts say that by
encouraging foreign direct investment (FDI) and by opening the
financial markets, growth and development will follow suit. This
argument was put forward without any real proof. It is well known
that capital liberalization is leading to more economic
instability and not necessarily to more growth. They say to
developing countries that the countries need a financially free
market in order to attract FDI. This is not true. Malaysia, a
country which temporarily imposed control on capital movements --
and faced the shortest crisis in Southeast Asia back in 1998 --
is continuing to benefit from FDI.

The IMF's overall objective was to assist countries facing an
economic crisis to enforce fiscal policies that favored healthy
growth and to support full employment policies. But the IMF
decided that its main task was to impose a liberalization of
financial markets serving the particular interests of financial
circles.

The IMF has also given priority to fighting inflation and not
unemployment, although most research shows that a moderate level
of inflation, in facilitating the economy's adjustment, is much
better than no inflation. The IMF is also more preoccupied by
guaranteeing debt reimbursements than maintaining the health of
borrowing countries.

It must be said that the IMF in Asia made a lot of mistakes.
For several countries in recession, it imposed restrictive
budgetary policies, which in turn aggravated the crisis, without
taking into consideration the interdependence of these Asian
nations. Before the monetary crisis, only eight percent of
Indonesians were living below the poverty level. That figure has
increased to at least 25 percent. The IMF imposed the closure of
banks and is responsible for interest rates hitting astronomical
levels in these countries, with thousands of companies falling
into debt. As a consequence, many companies were forced into
bankruptcy and many workers were laid off.

IMF experts did not think of the political or social
consequences, and if they had, it would have been even worse when
looking at the end result. At a time when unemployment was
skyrocketing and poverty was increasing, it continued to force
the economies of these countries into recession, spending
billions of U.S. dollars on assisting foreign creditors. At the
same time they demanded an end to subsidies on basic necessities.
This course of action could only end in social explosion. What is
remarkable is that after the IMF acknowledged its blunders in
Asia, it repeated the same mistakes in South America,
particularly Argentina.

When facing the Asian crisis, the IMF should have kept in mind
its initial mission: To support the economy of a developing
country through fiscal policies that generate growth. In
Indonesia in 1997 and 1998, reimbursements to foreign creditors
should have been suspended and a new bankruptcy procedure should
have been initiated, such as those that exist in developed
countries, and similar to the one launched in South Korea.

Behind the IMF's strategy, there is an ideology of market
fundamentalists which says that the market suffices to all. The
research of Prof. Joseph Stiglitz, from the University of
Columbia in New York and winner of the 2001 Nobel Prize in
economy, showed how the market works in reality. In all
successful economies, the government has played an important
role. But a certain ideology in developing countries states that
governments shall not intervene or if they do, as little as
possible. It is time to leave behind the measures proposed by the
IMF, which means privatization, liberalization and less
government intervention.

The IMF experts shall come back to a more adjusted policy
where the government has a real role to play. The IMF experts
must offer economic assistance to these countries, and, first of
all, open to these developing countries our markets. The IMF
would favor the opening, the transparency and the democratization
of the decision process.

The developing countries are not adequately represented. The
different points of view are also not well represented. This is
particularly marked within the IMF, where finance experts are
dominating all others.