An IMF Response to an Article in Barrons of April 15, 2000

April 15, 2000

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A Response to an Article in Barrons
April 15, 2000

By Thomas Dawson
Director
External Relations Department, IMF

Submitted to Barrons Dow Jones & Co. but not Published

Sir:

I've carefully read James North's interview with Joseph Stiglitz (April 15, "Sound the Alarm: Economist Joseph Stiglitz Rips Washington's "Market Bolsheviks") for the slightest hint of balanced reporting. But I came up short.

No matter how much anguish Mr. Stiglitz may claim over the policy response to the Asian crisis, it is outrageous to justify speaking out by citing the Holocaust. Moreover, I find it distasteful for a reporter or editor to unquestioningly publish such a shocking comparison.

"Intellectual rigor and creativity" that put someone on "everybody's short list for a Nobel Prize" do not impart a monopoly on insight into policy making. Indeed, one could suggest that some of Mr. Stiglitz's own policy prescriptions might have made things worse. For example, if China had followed Mr. Stiglitz's advice and devalued its currency, another round of regional currency instability easily could have ensued. Nor does Mr. Stiglitz's impressive background lend itself to historical accuracy: to lay the social chaos and violence of the collapse of the 30-year Suharto government at the feet of the IMF is inaccurate and irresponsible. It also is an accusation that few Indonesians make.

There are many other economists—with pedigrees equal to Mr. Stiglitz's—who agree with the IMF's approach to the Asian crisis. That approach certainly had its shortcomings, and the Fund has acknowledged for some time that it was inappropriate to seek greater fiscal stringency at the beginning of the crisis to help meet the cost of financial-sector restructuring. That strategy quickly became more flexible as the extent of the crisis became clear. But the decision to raise interest rates for a short period of time was correct. The alternative advocated by Mr. Stiglitz would have sparked greater capital outflows, deeper currency collapses and prolonged recessions. The proof here is in the pudding: the rebound in Asia is strong and sustained.

There is no question that there are important policy lessons to be learned from Asia—but not just from the few months that Mr. Stiglitz dwells upon. There are also lessons to be drawn about transparency and accountability, which we are pursuing on many fronts. That is very clear from a cursory look at the IMF website (www.imf.org), which, among many other documents, offers two internal assessments of Fund programs during the Asian crisis. It also would have become clear to your reporter had he bothered to call.



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