Globalization and Its Discontents, Essay Example

According to Globalization and Its Discontents, economist Joseph Stiglitz argues that International Monetary Fund (IMF) intervention worsened the East Asian financial crisis of the late 1990s. This occurred primarily due to regulations imposed by this agency in 1997 when the Thai baht collapsed. The value of the baht diminished by 25% overnight, which impacted other nations due to trade with other Asian and Latin American countries. The IMF damaged the economic standing of Thailand significantly in its attempt to resolve the problem. Ultimately, its failure to act appropriately resulted in excessively rapid financial and capital market liberalization. The IMF can only reasonable prevent these events if it takes action in a timely manner.

A primary argument for the IMF’s intervention worsening of the East Asian financial crisis is due to an innate bias that the organization held against Asian countries. There was a certain belief that these countries were less important due to the fact that their economies had only been recently established. As a consequence, these regions were significantly understudied compared to their counterparts and therefore the IMF was never knowledgeable enough to completely understand how to resolve the issue.

A secondary argument for IMF’s failed intervention is discussed in Chapter 8. The organization had been responsible for determining whether an economic crisis in one nation had the potential for spreading to other nations. If this is the case, the IMF believes that it is necessary to intervene. However, this is not always the situation, and occasionally markets can recover on their own. The author argues that the IMF was unable to fully understand Thailand’s economy and assumptions concerning “contagion” of their economic status were incorrect. This is a second reason that the IMF was ineffective; in this second case, they were still not educated enough to justify their action.

Ultimately, the IMF provided the Asian nations with loan arrangements so they would be able to meet foreign debt payments. However, they were required to adopt structural adjustment policies in exchange. This was problematic because unlike the case that generally causes economic difficulty in the Western world, these governments were not running budget deficits. Nonetheless, they were asked to slow their spending, which resulted in slower economic growth. In addition, short-term loans were rolled over into long-term loans, which forced a few Asian governments to guarantee private debts that were owed to foreign creditors.

Stiglitz also argues that the IMF has another agenda besides its stated agenda of promoting stability and growth in LDCs. The main purpose of the IMF is to both enhance the stability of the global economy and make sure that funds are available for countries that are going through a period of economic recession, which involves the pursuit of expansionary policies. As a consequence, the IMF has many goals, some of which contrast one another. Stiglitz argues that when these goals contrast, it is difficult for them to serve their true purpose.

This second, additional role of the IMF is not publicly understood and is therefore considered to be a secret agenda. It is generally kept quiet because the author believes that support for this organization will weaken as a consequence and those that supported the secret agenda were aware of this aspect. Essentially, this agenda marked a shift between the support of global economic interests to the support of global finance interests.

In light of this philosophy shift, it is not surprising that the IMF was unable to assist the financial situation in Thailand in the 1990s. Since this organization attempted to solve problems based on the biased viewpoint of the financial community, a lot of the actions that were deemed as necessary were done so also to protect the financial interests of the decision makers. In a sense, the IMF became an oligarchy because its members were derived from the financial community and serving on this organization often contributed to advanced positions within the field.

Ultimately, because the power of the IMF was controlled by so few, their misguided opinions became action, thus damaging the Asian economy. There is criticism, therefore, that this secret agenda was put in place primarily to ensure that foreign creditors would be repaid, rather than a focus on stabilizing local business. Critics of the IMF believe that this would have been a more reasonable approach to stabilize Thailand, and therefore prevent the spread of economic decline to its surrounding nations and nations it conducts business with. They believed that failing to focus on this aspect of the economy would undermine capitalism, and failed to account for what could happen if the country simply declared itself bankrupt. However, it is in the organizations own interest due to its connection with loan agents to support the country by providing it with this type of fund. As a consequence, the IMF became primarily concerned with how it would be paid back, thus overlooking the problem at hand.