Free Globalization And Its Discontent By Joseph Stiglitz Article Review Example

The East Asian Financial crisis started as an exchange rate crisis; however, major financial institutions, such as, banks and stock markets started getting affected after the collapse of the Thai Baht in 1997. According to Stiglitz the International Monetary Fund (IMF) was supposed to avert the crisis but it instead made it worse, he says, “in retrospect, it became clear that the IMF policies not only exacerbated the downturns but were partially responsible for the onset" (Stiglitz 89). Stiglitz refers to this time as, “the greatest economic crisis since the Great Depression—one that would spread from Asia to Russia and Latin America and threaten the entire world" (Stiglitz 89). The crisis might have been resolved but for countries like Indonesia will forever suffer from its effects. He states that the IMF policies were the major problem forcing an outcry in the United States of America for the revision of its policies and the organization as a whole. Stiglitz acknowledges that the East Asian countries also played a part in accelerating the crisis; however, IMF, which was formed purposely to avert the crisis, did worse. According to Stiglitz, some of the East Asian countries had refused to accept help from IMF because of the rigid conditions that came with the loans (Stiglitz 91). Stiglitz states that IMF tried to intervene in the crisis using the notion of free market. He says that IMF rushed to rescue the economies of the East Asian countries without first forming institutions that would carry on local and international trade. IMF greatly ignored the social, political and economic factors of these countries. He argues that IMF strongly advocated for privatization and had very strong laws that only fueled the crisis (Stiglitz 95). Stiglitz does not refute the fact financial aid could have contributed enormously to reducing the crisis by helping the East Asian countries absorb external shock; however, he insists that IMF failed to make their policies flexible in terms of the rules and repayment methods. This therefore led to the accumulation of huge debts for these countries, which they were unable to pay back. In other words, the policy makers of IMF wanted to establish a political system through economic means, for example in Asia IMF let things take their course. He states, "The IMF often talked as if what the economy needed was a good purgative. Take the pain; the deeper the pain, the stronger the subsequent growth" (Stiglitz 122). In Russia, the IMF policy seemed to boost only the government of Boris Yeltsin and the economy as it was supposed to. In chapter eight of Globalization and Its Discontents, Stiglitz states that IMF has policy makers who are market fundamentalists. He says ‘’ The IMF is pursuing not just the objectives set out in its original mandate; enhancing global stability it is also pursuing the interests of the financial community. This means the IMF has objectives that often conflict’’ (Stiglitz 206). However, he says that IMF needs to look back at where they went wrong and correct their mistakes. IMF should change the approach they use to formulate their policies that avert crisis. Stiglitz also points out that the policies of IMF are highly inconsistent (Stiglitz 196). Examples of these systems include the system to sustain exchange rates of an economy yet the same policies had failed to work in another country. The international monetary fund (IMF) policy requires the organization to try to quarantine, which means they are supposed to prevent one economic crisis from spreading to another country, but they did the exact opposite in the East Asian countries. In East Asian economies, IMF helped to spread the crisis to other economies (Stiglitz 200).
Other inconsistencies in the policies were that they had very simple rules when it came to the balance of payment deficits. IMF has also been known to give loans to offset Western creditors in case of deficits. These actions made lenders reluctant to repay back the loans. Additionally, those who borrowed money did not have to worry about repaying or taking up insurance because they were sure IMF would bail them out. According to Stiglitz, IMF put a requirement for loan approval where the country that was borrowing money had to have the support of the private sector (Stiglitz 201). This means that if a state failed to get a certain amount of money from a bank in the private sector then it failed to qualify for the loan. Additionally, IMF decided to take up the role where it required its borrowers to ask IMF for money as a last resort, but they should pay it back first. Hence, this meant that more money was going to IMF while the private sector received less money. This forced the private sector to hike their high-interest rates (Stiglitz 205). According to Stiglitz, IMF helped to resolve the economic crisis of the foreign creditors; however, their method of stabilization made the world to be more unstable. IMF followed the idea of bailing out creditors to save them from bankruptcy; however, this was the job of these governments through protecting its people socially and economically. Stiglitz advices IMF to consider being lenient to the debtors and not the creditors in the future. Similarly, IMF should strive to save economies that are in crisis first instead of beginning with building of foreign reserves in these failing economies (Stiglitz 209). He also suggests that IMF should work on formulating policies that will help economies that are in crisis to be stable in the short-term. IMF shifted their blame to the East Asian economies that were in crisis by saying that they lack transparency in their government activities and proper policies. However, this was just a way to pass the blame to someone else for their failure (Stiglitz 211).

Work Cited

Stiglitz, Joseph E. Globalization and Its Discontents. New York, NY: W.W. Norton, 2002. Print.