Re: Ashish' post dated November 21 ---One version of free trade

[Ashish Hanwadikar <ashish_hanwadikar@yahoo.com>]

---------------------------------------------------------------------
Please help make the Manifesto better, or accept it, and propagate it!
---------------------------------------------------------------------
IPI_Marker

The following article is very good so I am coping it verbatim.

April 23, 1998

Debt And Dependency Are The IMF Legacy

by Doug Bandow
Doug Bandow is a senior fellow at the Cato Institute and an
editor of Perpetuating Poverty: The World bank and the IMF


--------------------------------------------------------------------------------

Today the most important player in the Indonesian financial crisis --
the US Congress -- will vote on the Clinton Administration's plea for
$US18 billion ($27.5 billion) in new funds for the IMF. The Congress
plays such an indispensable role because it alone has the capacity to
destroy the entire IMF replenishment. It should reject funding for the
IMF bail-out of Indonesia.
Why? Because the IMF has failed to promote self-sustaining economic
growth anywhere in the world. Instead, it has left debt and dependency
in its wake.

Jakarta's economy remains bedevilled by inefficient monopolies,
insolvent banks, harmful trade barriers, wasteful food subsidies, and
political favouritism. And the bail-out package has only reduced the
Soeharto Government's incentive to reform by relieving the pain of
financial failure. Simply put, Jakarta needs to be forced to reform.

Which won't occur by giving Jakarta billions in loans. After Soeharto
announced a budget- busting spending increase, the IMF suspended its
next loan instalment. But IMF officials, unwisely influenced by
Canberra, hastened to assure Jakarta of their "flexibility" and inked a
new agreement. Indonesia knows that the IMF is loath to cancel its
program.


--------------------------------------------------------------------------------

Moreover, the IMF's proclivity to bail out the profligate creates a
danger of "moral hazard". The expectation of a subsidy encourages
people to behave irresponsibly.


--------------------------------------------------------------------------------

Thus, the Soeharto Government is likely to do only the minimum
necessary to receive aid. Which means Jakarta will almost certainly
retain its system of pervasive crony capitalism. Were Indonesia left to
its own devices, it would have to adopt all of the reforms necessary to
recondition its economy and reassure foreign investors, who tend to be
more careful with their own cash than are international aid bureaucrats
with tax money from industrialised states.

Now that the IMF, backed by Washington and Canberra, has intervened to
prop up Indonesia, as well as Thailand and South Korea, what nation
cannot expect help? What standard says "yes" to Indonesia and "no" to
other nations suffering severe financial distress? Other bail-out
candidates include Brazil, Malaysia, Mexico (again!), Russia, Ukraine,
and, incredibly, Japan. How stable will the global economy be if
prosperous nations continually underwrite economic failure? And if the
world really were ready to topple into the economic abyss, there isn't
much the IMF could do about it.

Moreover, the IMF's proclivity to bail out the profligate creates a
danger of "moral hazard". The expectation of a subsidy encourages
people to behave irresponsibly. Warns economist Allan Meltzer: "Banks
and financial institutions can now act safe in the knowledge that the
IMF will provide a safety net to protect them from some, or even most,
of their losses."

Of course, if international taxpayers are lucky, Indonesia and other
bail-out beneficiaries will repay their loans. But even then the credit
won't be free. When the IMF channels billions of dollars to a foreign
kleptocracy such as Indonesia's, it diverts resources from other uses,
such as investment by entrepreneurs in Australia.

But the IMF is addicted to wasting global taxpayers' money. The US
Congress should reject extra funding for the IMF. Otherwise, the IMF
will find more irresponsible foreign debtors to bail out.

(This article originally appeared in The Australian Financial Review.)




--- venugopal <gvvs@nird.ap.nic.in> wrote:
> ---------------------------------------------------------------------
> Please help make the Manifesto better, or accept it, and propagate
> it!
> ---------------------------------------------------------------------
> IPI_Marker
> Hello Ashish,
> Are you suggesting opening up imports while the developed countries
> continue
> giving huge agricultural subsidies to their farmers? What about the
> TRIPS?
> How would these things possibly promote free trade? Which are the
> stupid
>
> regulations? Can you identify some of them? Perhaps they can be dealt
> with
> case by case. In this post, I want to quote from an article about
> Stiglitz.
> Of course, all this may or may not be applicable to India's
> situation.
> Nevertheless, it gives some idea of the picture:
>
> Nobel Prize winning economist Stiglitz, who was earlier Chief
> Economist
> of
> the World Bank is reported to have admitted that before prescribing
> country-specific strategy, the World bank team conducted thorough
> investigations. These investigations " consist of close inspection of
> a
> nation's 5-star hotels. It concludes with the Bank staff meeting some
> begging, busted finance minister who is handed a 'restructuring
> agreement'
> pre-drafted for his 'voluntary' signature"
> It is also interesting that each Nation's economy is individually
> analysed.
> But the same set of 4 prescriptions are given to everybdoy. 1)
> Privatisation: " Step One is Privatization - which Stiglitz said
> could
> more
> accurately be called, 'Briberization.' Rather than object to the
> sell-offs
> of state industries, he said national leaders - using the World
> Bank's
> demands to silence local critics - happily flogged their electricity
> and
>
> water companies. "You could see their eyes widen" at the prospect of
> 10%
>
> commissions paid to Swiss bank accounts for simply shaving a few
> billion
> off
> the sale price of national assets."
> 2)"Step Two of the IMF/World Bank one-size-fits-all
> rescue-your-economy
> plan
> is 'Capital Market Liberalization.' In theory, capital market
> deregulation
> allows investment capital to flow in and out. Unfortunately, as in
> Indonesia
> and Brazil, the money simply flowed out and out. Stiglitz calls this
> the
>
> "Hot Money" cycle. Cash comes in for speculation in real estate and
> currency, then flees at the first whiff of trouble. A nation's
> reserves
> can
> drain in days, hours. And when that happens, to seduce speculators
> into
> returning a nation's own capital funds"
> 3."Step Three: Market-Based Pricing, a fancy term for raising prices
> on
> food, water and cooking gas. This leads, predictably, to
> Step-Three-and-a-Half: what Stiglitz calls, 'The IMF riot.' The IMF
> riot
> is
> painfully predictable. When a nation is, "down and out, [the IMF]
> takes
> advantage and squeezes the last pound of blood out of them. They turn
> up
> the
> heat until, finally, the whole cauldron blows up," as when the IMF
> eliminated food and fuel subsidies for the poor in Indonesia in 1998.
> Indonesia exploded into riots, but there are other examples - the
> Bolivian
> riots over water prices last year and this February, the riots in
> Ecuador
> over the rise in cooking gas prices imposed by the World Bank. You'd
> almost
> get the impression that the riot is written into the plan. (....and
> by
> riots
> I mean peaceful demonstrations dispersed by bullets, tanks and
> teargas...) "
> 4."Now we arrive at Step Four of what the IMF and World Bank call
> their
> "poverty reduction strategy": Free Trade. This is free trade by the
> rules of
> the World Trade Organization and World Bank, Stiglitz the insider
> likens
>
> free trade WTO-style to the Opium Wars. "That too was about opening
> markets," he said. As in the 19th century, Europeans and Americans
> today
> are
> kicking down the barriers to sales in Asia, Latin American and
> Africa,
> while
> barricading our own markets against Third World agriculture. In the
> Opium
> Wars, the West used military blockades to force open markets for
> their
> unbalanced trade. Today, the World Bank can order a financial
> blockade
> just
> as effective - and sometimes just as deadly.
> Stiglitz is particularly emotional over the WTO's intellectual
> property
> rights treaty (it goes by the acronym TRIPS, more on that in the next
> chapters). It is here, says the economist, that the new global order
> has
>
> "condemned people to death" by imposing impossible tariffs and
> tributes
> to
> pay to pharmaceutical companies for branded medicines. "They don't
> care,"
> said the professor of the corporations and bank loans he worked with,
> "if
> people live or die."
> By the way, don't be confused by the mix in this discussion of the
> IMF,
> World Bank and WTO. They are interchangeable masks of a single
> governance
> system. They have locked themselves together by what are unpleasantly
> called, "triggers." Taking a World Bank loan for a school 'triggers'
> a
> requirement to accept every 'conditionality' - they average 111 per
> nation -
> laid down by both the World Bank and IMF. In fact, said Stiglitz the
> IMF
>
> requires nations to accept trade policies more punitive than the
> official
> WTO rules."
> The quotes above are from an article by Greg Palast published in the
> 10th
> October, 2001 issue of The Observer, London. Following is the link:
> http://www.zmag.org/noblestiglitz.htm



--------------------------------------------------------------------------
This is the National Debate on System Reform.       debate@indiapolicy.org
Rules, Procedures, Archives:            ../debate/
-------------------------------------------------------------------------