M. Stiglitz est mal informé! (Mr. Stiglitz is Imperfectly Informed!), Letter to the Editor, By Thomas C. Dawson, Director, External Relations Department, IMF
August 27, 2002
Professor Stiglitz won the Nobel Prize for studying the results of imperfect information. In his recent interview ("Le FMI obeit aux interets de Wall Street", August 12), he demonstrates his command of imperfect information. His charge, for example, that the IMF caters to the interest of large countries or of financial markets is not based on the facts.
It is a myth to say the United States has a veto at the IMF. It has enough votes to block a change in the charter, but then so do many combinations of European countries acting together—Europe has twice the voting power of the United States. From the twin budget and current account deficits of the 1980s to the recent Farm Bill, the IMF has not shrunk from criticizing the United States. Nor are other large shareholders beyond criticism. For example, we are now urging the "Big 3" Euro-area countries to comply with the Stability and Growth Pact. And after years of pressing Japan to accelerate bank restructuring, an IMF team was invited to take an inside look to better analyse the problem.
Contrary to Prof. Stiglitz's claims, international investors are seldom "bailed out" by the IMF. Investor losses in the first year of the Asian Crisis totaled as much as $200 billion, while their 1998 losses in Russia amounted to about $100 billion.
Moreover, the IMF has often championed policy innovations that have been costly for investors. During the 1980s debt crisis, the IMF pressured commercial banks to reschedule their loans, and later played a pivotal role in the Brady Plan to write down the value of these debts. Today, the IMF is developing a proposal for a new debt restructuring mechanism, opposed by leading creditor groups, to allow countries to negotiate write-downs of their international bonds.
No economy can prosper without investment, which will not remain where bad policies promise poor returns. Recognition of this sometimes-unpleasant reality should not be confused with siding with the financial community.