Market Solutions Offer Best Hope for Poor

A Letter to the Editor
By Mr. Thomas C. Dawson
Director, External Relations Department
International Monetary Fund

The Observer
Submitted but not published
May 3, 2001

Your Le Carré-quoting correspondent ("IMF's four steps to damnation" by Gregory Palast, April 29 Observer) has disinformation skills that would make Smiley proud. However, as avid readers of spy novels know well, the "defector" (in this case former World Bank Chief Economist Joseph Stiglitz) often knows less than he claims to do.

I will not respond to innuendo, and the article contains many errors of fact; I am sorry to see that my response to many of Mr. Palast's charges on Newsnight two days prior did nothing to reduce their number. It must be said, however, that the IMF does not present "the same four-step programme" to every country it assists.

The IMF is continually changing, for example by placing a new emphasis on poverty reduction. We continue to believe, however, that market solutions-imperfect though they may be-generally offer the best hope for the poor in most circumstances, stimulating growth, freeing ordinary people in poor countries from the clutches of self-serving bureaucrats, and allowing the resources freed from subsidies and other distortions to be targeted at the poor.

This does not mean we favor unregulated markets, nor does it mean instant liberalization, particularly-in contrast to the Observer's claim-of capital markets, where we recognize that a gradual approach will work best, especially in countries with less well-developed financial markets.

It is clearly true that the developing countries that have done the best in recent decades-think of East Asia-are those that have opened to foreign trade and taken advantage of foreign capital. Instead of railing against the IMF, those who are genuinely concerned with the plight of poor nations should be lobbying their governments to provide better market access to developing countries and to reverse the declining trend of foreign aid.