Stiglitz, the IMF and Globalization -- Speech by Thomas C. Dawson, Director, External Relations Department, IMF

IMF News, June 13, 2002

Source details

Canonical URL: Stiglitz, the IMF and Globalization -- Speech by Thomas C. Dawson, Director, External Relations Department, IMF

Delivered to the MIT Club of Washington.
Date: June 13, 2002.
Speaker: Thomas C. Dawson, Director, External Relations Department, International Monetary Fund.
Primary aim: respond to Joseph Stiglitz's criticisms of the IMF and discuss areas of agreement on globalization.

IMF described as a multilateral agency with two main jobs:
- to help preserve global economic and financial stability; and
- to assist in the global war on poverty.
Historical shift in policy posture:
- Shift toward greater confidence in markets attributed to geopolitical and economic developments in the 1980s and 1990s (collapse of the Soviet Union, fall of the Berlin Wall, and market-oriented reforms in the United States and the United Kingdom).
- Stiglitz’s academic work highlighted market failures; IMF practice moved toward more use of markets based on historical evidence.

Dawson rejects Stiglitz’s overarching charge that the IMF is driven by "market fundamentalism," arguing:
- IMF staff recognize market imperfections and the need for policy responses.
- Shift toward markets was a response to evidence and historical developments, not ideological blindness.
External perspectives cited:
- Index comparison in Stiglitz’s book: "64 references to globalization" versus "340" references to the IMF (presented as an indicator of book focus).
- Criticism from the right (Brink Lindsey) calls the "market fundamentalism" accusation "misleading to the point of absurdity."

Allegations about staff motives and competence:
- Stiglitz accuses staff of treating the unemployed "as just a statistic" and staying in "five-star hotels"; Dawson counters that IMF staff are drawn from "nearly a 150 countries" and care about developing countries' suffering.
- Stiglitz’s remark that IMF staff are "third-rank students from first-rate universities" is rebutted by citation of Rudi Dornbusch’s defense of IMF/World Bank staff quality.
- Specific personnel allegation challenged: Stiglitz’s implication regarding Stanley Fischer and Citigroup is called "repugnant" and inconsistent with Fischer's record.

Accepted critiques:
- Excessive zeal in encouraging capital account liberalization in the mid-1990s is acknowledged as a valid criticism in part.
- IMF conceded errors in initial response to the Asian financial crisis and that it had not kept up with rapid developments in international capital markets.
Changes in IMF practice in response:
- IMF is "more vocal in pointing out the risks of rapid capital account liberalization" and gives cautionary notes greater prominence.
- Example cited: "three weeks ago ... we advised Sri Lanka against opening up its capital account until its financial sector was further strengthened."
Fiscal policy during crises:
- Thailand in July 1997: still growing with "a huge and growing current account deficit (more than 8 percent of GDP)"; IMF initially recommended a roughly-unchanged fiscal position but soon supported large budget deficits and increased social spending as crisis scaled up.
Monetary policy debate remains unresolved:
- Stiglitz advocates easing monetary policy at crisis onset; IMF and others (Larry Summers, Rudi Dornbusch, Michael Mussa) emphasize conflict between restoring external confidence and providing liquidity—no professional consensus exists.

Observed weakness: existing mechanisms to resolve crises "do not work smoothly."
Proposal referenced: Anne Krueger’s suggestion for a statutory mechanism to secure more orderly and timely restructuring of unsustainable sovereign debts.
- Mechanism concept: empower a super-majority of creditors to take key decisions in restructuring negotiations with the debtor.
- Stiglitz is described as "quite supportive of the general idea."

IMF and World Bank have launched a more "participatory" approach to poverty measurement and strategy design, engaging governments and civil society early.
Stiglitz’s view: participatory assessments "are a step in the right direction" but warns that a persistent gap between rhetoric and reality will cause disillusionment.

Agreement with Stiglitz on benefits of globalization:
- "Opening up to international trade has helped many countries grow far more quickly"; globalization has improved life expectancy and standards of living; access to knowledge has expanded.
- Quoted Stiglitz view: working in factories can be preferable to subsistence agriculture; globalization reduced isolation in the developing world.
Distributional concerns:
- Benefits are "spread very unevenly."
- Specific regional observations: unfulfilled expectations in Africa; Latin America’s growth not yet secure; India "only just emerging from decades of economic slumber."
- Larry Summers cited: in the developing world "far more people are poor because of too little globalization rather than too much."
- Stiglitz’s counterpoint: critique of "one-size-fits all" approaches and excessive zeal/haste in market reforms; advocates allowing countries to experiment with alternatives.
Concrete policy recommendation emphasized:
- Developed countries should lower trade barriers against products in which developing countries have a comparative advantage; Dawson notes Stiglitz’s call here aligns with IMF Managing Director speeches.

Dawson frames the debate as having both substantive disagreements and substantial areas of agreement.
He identifies two books in Stiglitz’s work:
- A list of allegations against the IMF containing some valid criticisms amid half-truths and falsehoods.
- A mainstream analysis of globalization where IMF and Stiglitz share common ground.
Final note: speech ends on an expression of harmony regarding globalization policy directions.

Source: Stiglitz, the IMF and Globalization — Speech by Thomas C. Dawson, June 13, 2002.