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| BATTLE IN THE CAPITAL | |
 April 17, 2000 
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Welcome, gentlemen. Joseph Stiglitz, the protesters in the street are saying... I mean, their big points are two: One, in many ways the policies of the institutions are unjust. And perhaps as a result, they really haven't done as much to alleviate world poverty as they could have or should have. Do they have a point? Do they have valid points? |
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| Reviewing the IMF/ World Bank | |||||||||||||||||
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MARGARET WARNER: Do you agree, Mr. Meltzer, that sometimes the policies are counterproductive?
MARGARET WARNER: Fred Bergsten, how do you assess their performance? Are these demonstrators right?
JOSEPH STIGLITZ: The most... Largest removal from poverty, the most successful country has been China. They never had an IMF Program. FRED BERGSTEN: They were big World Bank leadership. JOSEPH STIGLITZ: World Bank, but not IMF They deliberately avoided it. Botswana, the country in Africa that has been the most successful African country... ALLAN MELTZER: Has diamonds. JOSEPH STIGLITZ: Has diamonds, but elsewhere, in Nigeria, you have people fighting over natural resources. In general, natural resources do not necessarily... FRED BERGSTEN: The thing with the IMF...
MARGARET WARNER: We have to let Robert Hormats in here. How do you assess the performance of these two institutions? ROBERT HORMATS, Goldman, Sachs International: By in large I think they have made a number of mistakes, but if you look at the totality of their programs, I think they've done reasonably well. They didn't create these crises. These were very serious crises when the IMF went in to deal with them and help to alleviate, to stem the hemorrhaging of funds that many of these countries were experiencing. The Bank itself, I think, has done quite well in addressing many of the issues that are causes of poverty throughout the world. I think these protesters have it wrong. I think the people inside the building at these meetings were doing more to deal with the problem of poverty than the people on the streets.
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| Assessing the International Monetary Fund | |||||||||||||||||
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MARGARET WARNER: Okay. Let's separate the two institutions because they do different things. Mr. Meltzer, what would be your fix for the problem that your commission and Mr. Stiglitz has also identified, which is that sometimes you believe the IMF's policies, we'll look at the IMF first, tends to almost exacerbate some of the problems it was meant to alleviate.
MARGARET WARNER: You mean, even if a country is in a emergency situation. ALLAN MELTZER: Right. Mexico, for example, it took from January to March to get the reforms in, and Korea took a while. There was a big crisis in December. Things got worse. What my commission said, let's set some rules. Let's get these countries to make the reforms first. Then the crises won't be as big. They may not occur, and there won't have to be these long negotiations. If they meet the standards, they get the money and they get it quickly. And that would be a great improvement over the present system with the long negotiation and the sometimes counterproductive conditions that they put on. MARGARET WARNER: And you're saying just do short-term funding.
MARGARET WARNER: Let Fred speak for himself. FRED BERGSTEN: I did vote for that. But I think Alan overstates the timing problem. It does take some time to work out these programs, but bridge finance has always worked out through the US Treasury, through the D.I.S., there are all sorts of ways to bridge until the IMF works out the program. I see no alternative to working out conditionalities of the type the IMF does. When a country gets into a crisis, it's because it's done something wrong -- the huge budget deficit, profligate monetary policy, an overvalued exchange rate, a financial system that's awry.
MARGARET WARNER: Joe Stiglitz, in your article, you also took issue with some of the conditions the IMF lays down. JOSEPH STIGLITZ: My view is very strongly that as often as not they put conditions that make things worse, that they go into areas that are political and not economic, have absolutely nothing to do with the crisis. For instance, the middle of the Korean crisis, they were talking about changing the charter of the Central Bank so it focused exclusively on inflation rather than employment and jobs. If we did that in the United States...
JOSEPH STIGLITZ: It's not the time to address those issues. Those should be political issues, not dictated in the midst of a crisis by an outside international agency. MARGARET WARNER: So you're agreeing with the protesters that sometimes these austerity policies are misplaced or this insistence on austerity in some of these countries... JOSEPH STIGLITZ: Exactly. The other thing these protesters are saying is there is interference with democracy, and that when they go into these political issues that have nothing to do with the crisis, they're really undermining democratic process seize. MARGARET WARNER: Bob Hormats.
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| Assessing the World Bank | |||||||||||||||||
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MARGARET WARNER: Let's switch to the World Bank. Mr. Meltzer, one... Your most controversial recommendation that Jim Wolfensohn, head of the bank did not like, get out of these countries entirely that have any capital reserves at all. Why would that help the bank be more effective?
ROBERT HORMATS: I'd like to intervene. I go to China every three months. I flatly disagree with that. First of all, a large portion of the world's poor still live in China. There's a lot of poverty there. Second, what the World Bank does is help countries to build institutions. ALLAN MELTZER: But we're not against using technical assistance. We're just saying that that money could be used much more effectively elsewhere.
MARGARET WARNER: But what about his point that in fact these countries could afford to build these hospitals or bridges or whatever they are themselves? ROBERT HORMATS: Well, that's true, some of them could, but I think the World Bank technical assistance remains extremely important, and it's very hard to put technical assistance, separating it from financial assistance. A certain amount of financial assistance helps.
ALLAN MELTZER: It does. JOSEPH STIGLITZ: It comes to the World Bank because the World Bank in putting through the project provides a variety of services in terms of technical assistance that is neatly linked with the project itself. I think Allan is a little bit wrong in thinking that this is taking money away from, say, Africa. The money from Africa comes out of IDA funds that are appropriated by the congress. Ida is the special... MARGARET WARNER: Different. JOSEPH STIGLITZ: Different money... FRED BERGSTEN: Grant money. JOSEPH STIGLITZ: Effectively grant money that goes to the poorest countries. The World Bank can really be thought of as two separate banks sitting together in one place. One for the poorest, one for the middle income. The middle income one is a cooperative that pays basically is not really subsidized. |
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| IMF/ World Bank under scrutiny | |||||||||||||||||
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FRED BERGSTEN: Part of it is a lack of transparency and a failure of the institutions to effectively convey their message. The institutions should become more open, should become more transparent, should let outside groups have a direct input. A lot of this is processed. A lot of it, however, is a lack of understanding of what they do. If you go out and ask those protesters in the streets today what the IMF does, I doubt 1% of them, 1% of them would have been able to tell you. Could I make one point on the private lending, because the private markets are hugely volatile. To put full reliance on these markets, which brought the crisis two and three years ago is like putting the fox in charge of the chicken house. That is a big mistake, and I wouldn't want to see it happen. JOSEPH STIGLITZ: That is just wrong. But I'll let you go - MARGARET WARNER: Briefly, why do you think we're seeing more scrutiny of these two institutions now? ALLAN MELTZER: I think it's because the Cold War is over. MARGARET WARNER: Sorry. Quickly, Mr. Meltzer.
MARGARET WARNER: Bob Hormats. ROBERT HORMATS: I don't think it's only that. These are very important
institutions in the global economy. There are clearly people concerned
about them. But I think Fred's right. Many of these people don't really
understand what they do. And part of the problems of the IMF and the
World Bank as they become more powerful have not become more transparent.
They have to explain themselves a lot better to the people in the industrialized
countries, what they do, how valuable its been and do MARGARET WARNER: All right, gentlemen. Sorry. We have to leave it there. But thank you all four very much. We'll return to this. |
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MARGARET
WARNER: In addition to the protests in the streets, the debate over
the IMF And World Bank is also taking place in international economic
and financial circles. For a sample of that debate, we turn to Joseph
Stiglitz, former chief economist at the World Bank, and now a special
advisor to the bank's president. He's the author of the current New
Republic magazine cover story, "The Insider: What I Learned
at the World Economic Crisis." Allan Meltzer, a professor of political
economy at Carnegie Mellon University. He chaired a special congressional
advisory commission that just issued a report urging reform of both
the World Bank and IMF. Fred Bergsten, director of the Institute for
International Economics, and a member of the Meltzer advisory commission
who dissented from its recommendations. And Robert Hormats, vice chairman
of Goldman Sachs International, and former assistant secretary of state
for economic affairs in both the Carter and Reagan administrations.
JOSEPH
STIGLITZ, Former Chief Economist, World Bank: I think they do. I think
in fact in some cases, and they're more about the IMF than the World
Bank, the IMF, I think, in the recent East Asia crisis actually its
policies caused a deeper downturn than needed to have been the case,
and that led to more poverty than otherwise would have been the case.
I think we also have to recognize that the transition economies, the
economies of Russia and the other economies moving from social economist--
socialists and communism to America. I think everybody thought it was
going to be difficult; I don't think anybody thought or realized how
difficult it would be. Poverty has gone from 2% to close to 50% in eight
years in Russia. And I think part of that has to do with the policies
that the IMF promoted.
ALLAN
MELTZER, Carnegie Mellon University: Some of the policies are counterproductive.
But I think Joe who worked at the World Bank lets the World Bank off
much too easily. By their own calculations, about 70% of their programs
in Africa failed. On average, about 50% of their programs in the World
fail. And those are their own calculations, and they're not very good
calculations. If we did them right, they would probably be worse. The
other fact is that they're lending most of their money to the countries
that could easily borrow the money in the capital markets. They have
plenty of insurers to finance their own programs. They don't do it in
the countries that need the help the most. So the demonstrators are
wrong to say the World Bank should get out of there. They should be
carrying sign that say Jim Wolfensohn, get with it. 
FRED
BERGSTEN, Institute for International Economics: I don't think they're
right at all. There are some reforms needed, in both the Fund and the
Bank, but I think my colleagues on the panel miss the bottom line. 18
months ago the world faced a severe economic and financial crisis. The
Fed had to reduce interest rates sharply. They there were justified
fears of a global financial crush. Here we are 18 months later. The
world economy is booming; the economic outlook looks very good. The
bottom line of the IMF reform programs in the Asian countries, as in
Mexico before, is very successful. Almost every one of those countries
has experienced a sharp recovery. It might have been a little less bad
if the IMF had been... done some different things right at the outset,
but it recovered quickly. And the bottom line is very good. If you take
the long look, the last 50 years when these institution have been critical,
it's been a period of unparalleled prosperity in the world economy,
a period unparalleled in the alleviation of poverty and the removal
of hundreds of millions of people out of poverty status. Take the big
picture look, and the institutions have done a pretty good job. 
MARGARET
WARNER: Go ahead. 
ALLAN
MELTZER: The thing Fred leaves out is they're they've supported the
Marcos, the Suhartos, the Mobutus of the world. They've supported a
lot of dictators. It's true there's been a lot of progress in the world.
What isn't true is the inference that the World Bank and the IMF Are
responsible for most of that. 
Does
it mean they've been successful on all counts, obviously not. But as
Fred said, if you look at the sweep of developments since the Breton
Woods institutions were created, poverty has been reduced in many parts
of the world. We have had a series of financial crises. But they were
much more a function of the problems in these countries and a very volatile
capital market in the world. And I think the IMF has done reasonably
well. Can it do better? It certainly can do better in terms of explaining
itself, greater transparency. It does try to mettle too much and ask
for too much conditionality in many of these countries too soon, unrealistically.
But by in large I think it's been a positive record far more than a
negative one. 
ALLAN
MELTZER: Right. There are several problems. They come in with long negotiations
the terms that they're going to lend on and the reform, sometimes 40
or 50 different programs. Some effective, some ineffective. Many times
not observed. But it takes a long time to get those negotiations through.
JOSEPH
STIGLITZ: Short-term funding, that's right. I think everybody, in fact,
the whole commission, even Fred who objects to everything, even Fred
voted for those conditions. 
The
fund has to look at the situation at that time, get the country to accept
changes in its policies or else the money's going to be wasted that's
put in, the country is not going to put its house in order, and the
international system and the country are going to still be in bad shape.
What Professor Meltzer wants is a bunch of preconditions, which I happen
too agree are important, reform of the financial system of the country.
But that would leave out very important causes of crises. You have to
go with the whole package. And to repeat, the timing is not a problem,
because bridge finance is always available, and that has not been a
difficulty. 
MARGARET
WARNER: During a recession? 
ROBERT
HORMATS: I agree with Joe to a certain extent. I think the IMF did ask
for an excessively tight fiscal policy when the Koreans could have used
some stimulus to help restructure the banks. I think the IMF does tend
to do things that are very hard for the body politic in these countries
to swallow, without sufficiently explaining it to them. In Korea's case,
President Kim Dae-Jung wanted major reforms and basically supported
the IMF, but in many parts of the world, people in the countries who
are getting IMF money don't really understand why certain demands are
being made on them for reforms, and many of the kinds of reforms the
IMF wants require a political consensus to be sustainable. If there's
not a political consensus, very hard to sustain them. I think a lot
of what the fund does is right, but much more sensitive to the political
conditions of these countries and making a greater effort to rally support
behind some reforms and not asking for too much. Trade reforms, for
instance, many my judgment are inappropriate the shutting down of the
large number of banks in Indonesia actually worsened the crisis. They've
done a lot of very good things, but they have to learn from their mistakes,
and I believe over a period of time they will. 
ALLAN
MELTZER: Because let's take the case of China. China has $150 billion
worth of foreign exchange reserves. It borrows from capital markets
about $60 billion every year. The amount of money that it gets from
the World Bank and all the other international lenders, about $1 billion.
That has nothing to do with China. China can run any poverty program,
any social welfare program it chooses to run, but that billion dollars,
if it were applied to the poorest countries of the world would make
an enormous difference. So what we said, Jim Wolfensohn is wrong when
he says, "we want to lend where most of the poor people live. "
We say, we want to lend or give where most of the poor people live who
don't have access to resources other than those coming from the government."
That reallocation would do a lot. 
ROBERT
HORMATS: It's hard to provide technical assistance without a certain
amount of money that goes with it. The bank has done an excellent job
in China. The Chinese understand that. And all most everyone that has
participated in the development process understands that. 
JOSEPH
STIGLITZ: Can I put it differently? The point is China isn't coming
to the World Bank because it needs the money. It could go into the national
capital markets. It's coming to the World Bank... 
MARGARET
WARNER: Let me get back to one big-picture question, Fred Bergsten.
These two institutions for decades have operated essentially without
public scrutiny. We have now protesters in the street and insiders like
yourself questioning why this works. What has changed? 
ALLAN
MELTZER: The Cold War is over. So we've had Mobutu, Suharto, all these
crooks. They were our crooks. Now they're on their own. That's reason
number one. Second, there's been a lot reported about corruption and
stealing. American people put up with some of that when it was the Cold
War because they were on our side. Now there's no more side. That's
a big, big part. 
likewise
for the emerging economies to help them better understand why they,
the bank, and the fund make the recommendations they do. There is a
big democratic deficit here. These NGO's should not have a vote in these
institutions, but there should be a better dialogue with the NGO's and
with public opinion throughout the world. Otherwise, public opinion
is going to fall back, and it's going to be very hard to get funding
and very hard to get support for the kind of programs they advocate.