According to Stiglitz, the IMF was founded in order to determine the roots of a potential market failure and the ways of either preventing it or minimizing the negative outcomes through collective activity (197). In the meantime, the analysis of the IMF’s strategy today shows that the organization has changed its agenda.
The evidence of the change of agenda is the character of policy that the IMF encourages or, in some cases, imposes. Stiglitz explains that the desirable line of policy would be initially characterized as expansionary, whereas, now, it can be referred to as “contractionary” (197).
This shift is critical as it signifies that the IMF has changed its vision of the core reasons for markets’ failures. The economists that run the IMF assume that the expansive ambitions of a government are essentially negative from the economic perspective. Therefore, the proposed agenda offers a literally reversed course of action. Stiglitz, in his turn, considers this shift to be exclusively negative – he believes that the support of contraction instead of expansion means that the IMF exacerbates the problems (197).
Another change of the IMF’s agenda is associated with the shift in the exchange rate regulation. Hence, the organization would initially stick to the government’s nonintervention in any kind of price regulation. Therefore, the exchange rate that evidently belongs to this category was initially supposed to be regulated by the market. In the meantime, this “laissez-faire” approach has changed. Stiglitz points out that the main disadvantage of this phenomenon resides in the fact that the organization tends to evaluate the excessive “pessimism” incidental to the market, whereas its excessive “optimism” remains underestimated (198).
As a result, the money that the IMF contributes is not used efficiently. The initial aim of the IMF was to provide loans to deficit coverage (From note). Meanwhile, as exemplified by Thailand’s crisis, the billions of dollars contributed by the IMF only encouraged additional speculations within the local economic sector (Stiglitz 198). Consequently, instead of fixing the economic speculation, the attempts to regulate the exchange rate through the help of the IMF resulted in the situation when speculators from all over the world took advantage of the Thai crisis (Stiglitz 95).
The scope of the falsehood of the IMF’s prognosis appears to be indeed excessive. Thus, the organization’s economists would not only fail to foresee the potential sequence of events in the economy of the East but would refer to the relevant economic situation as “East Asia Miracle.” Shortly after that, they would change their mind completely, characterizing the local economic institutions as “rotten” and “corrupt” (Stiglitz 90). Such a radical change in the IMF’s assessments illustrates the high level of professional incompetence and the wrong basis on which the economists rely while carrying out their analysis.
Another strategic change that might be pointed out within the IMF concept is its reaction to the response to the crisis outbreak. Hence, the IMF was initially supposed to be an organization capable of performing effective negotiations with countries that are exposed to economic challenges (From note). The example of the recent Asian crisis illustrates that the IMF’s negotiating effort is no more productive. Quite the opposite, its recommendations lead to disastrous outcomes.
Stiglitz explains this phenomenon by the fact that the modern IMF has a reversed vision of the crisis’s roots (199). Thus, the initial interpretation of the key determinants of a crisis was a country’s reduction of its import that had a negative impact on other countries. One of the basic economic principles implies that active import is one of the triggers of economic growth (From note). In the current context, the IMF has a different vision of a potential panacea – it recommends cutting down on the import volumes that naturally impedes the economics’ progress leading to its stagnation (Stiglitz 199).
Therefore, Stiglitz concludes that the IMF prevented the East Asian governments from taking the essential measures imposing their vision of the “right” alternative (93). In the meantime, it might be assumed that the situation would have had better prospects in case the organization showed less interference and pressure.
Analyzing the change of the IMF agenda, it is essential to mention its approach to managing bankrupt economies. One of the key economic principles resides in the fact that a loan should be supported by the borrowers’ guaranteed paying capacity (From note). Otherwise stated, the borrower is supposed to receive a loan in case it is ensured that the consequences will be born. The IMF’s approach to bankruptcy changes this core principle relieving borrowers from any responsibilities.
As a result, lenders are no more obliged to evaluate potential risks (Stiglitz, 202). This investment behavior is highly hazardous for the general economic climate as it implies ungrounded decision making and overall economic failures. Splitglitz explains that this problem is mainly determined by the fact that the IMF has changed its approach to determining the need for a loan. Otherwise stated, the organization would previously set concise criteria upon which to decide whether a particular country can receive a loan. At the present point, it appears that there is no rationale supporting the organization’s decisions (Stiglitz 204).
Nevertheless, it is essential to note that Stiglitz’s evaluation of the strategic change that has occurred in the IMF is ambiguous. Hence, for instance, the author admits that some of the transformations were provoked by the growing complexity of the modern economic environment. Meanwhile, he admits that the new agenda has an entirely different target. Thus, step by step, the IMF has been reforming its strategic concept to make it more focused on the needs and interests of the financial community.
The global economy, as well as the overall welfare, has naturally fallen by the wayside (Stiglitz 207). Such an interpretation of the IMF’s new agenda throws light on the root of its poor efficacy in the East Asian crisis – as long as the pivot emphasis is now put on the financial community, it might be considered that its measures were relevant.
Stiglitz, Joseph. Globalization and Its Discontents, New York, New York: W.W. Norton, 2002. Print.