The Nation, June 21, 1999
The IMF and the World Bank had their annual spring meetings in Washington recently, and one thing was perfectly clear: there is not going to be any "new global financial architecture" in the foreseeable future. It took a Great Depression and a World War to bring us the Bretton Woods agreement, the system of fixed exchange rates that lasted until 1973. In the absence of similarly cataclysmic events, the overseers of the global economy have no need to look at the blueprints churned out by policy wonks and think tanks who have been jockeying for "a seat near the table."
In just the past two years, the inherent instability of global financial markets, coupled with the IMF's disastrous interventions on three continents have pushed tens of millions of people into poverty. But for the "Wall Street-Treasury complex" the crisis is over. Investors are moving back into emerging markets, the U.S. stock market is booming again, and fears of international financial "contagion effects"-- from Russia's default on international debt, for example-- have subsided. Does this mean that reform is impossible? Quite the contrary: but the best prospects for reform reside at the national level, not within unaccountable, colonial, supra-national institutions like the IMF and the World Bank.
Many observers could not help noticing that the Chinese economy grew by 7.8% last year, while the rest of the region fell deep into recession or depression. Ironically, China is now helping to save the globalizers from themselves. It has so far kept its fixed exchange rate, rather than devaluing in order to get a larger share of shrinking regional export markets. Instead of pursuing a "beggar thy neighbor" strategy, which most analysts believe could set off another round of currency depreciations and crises, China has shifted resources to domestic production. The government is spending a massive $200 billion on public works this year--relative to their economy, an amount that is more than our entire federal budget.
China has more autonomy to pursue rational macroeconomic policies than most poor countries: its currency is not freely convertible, its financial system is domestically owned and controlled by the state, and there is relatively little foreign ownership of equities. And it does not have to take orders from the IMF.
But the list of countries that have taken measures to protect themselves from global financial markets is growing. Malaysia's use of currency and other capital controls allowed it to lower interest rates significantly over the past year and stabilize its economy. Last year, Hong Kong placed restrictions on speculative trading and intervened heavily in its currency and stock markets in a successful effort to beat back an assault by hedge funds. Chile and Colombia have used capital controls to shift the composition of foreign investment away from volatile short-term flows to longer term investment and loans-measures that helped protect them from the shocks of the Mexican peso crisis in 1995.
These are modest reforms, but they show that even small countries do not have to simply submit to the whims and caprices of international financial markets. Perhaps more importantly, they are signs that one of the most important prerequisites to social and economic progress-- national economic sovereignty-is finally making a comeback.
More than 40 years ago most economists knew that the state had a vital role to play in the process of economic development, and that unregulated markets by themselves would polarize the distribution of income and wealth and could lead to panics, crises, recessions, and depressions. They also knew that industrialization and economic development required some protection from international market forces as well as planning, and that the later any country arrived on the scene, the more state intervention it would need.
But all of this knowledge has gotten lost in the swamp of neoliberalism, like the knowledge of the physical sciences that was buried during the middle ages. And the neoliberal experiment has failed much more miserably than most people know, even on its own terms-- that is, ignoring the distribution of income and wealth. For the last twenty years, Latin America has chalked up about zero growth per capita, as compared to a more than 70% percent increase in the previous two decades. For Africa, the decline has been even worse, with per capita income actually shrinking over the past twenty years.
There are many paths to economic development, but almost all of those taken successfully in the past are currently prohibited by Washington and its primary enforcer, the IMF, which literally makes the major economic decisions for 75 countries. (Despite rhetorical and some programmatic differences, the World Bank plays the same role by denying credit to countries who resist the IMF's deadly macroeconomic prescriptions). The first precondition for the advancement of the world's poor is therefore to break this foreign stranglehold on their governments.
This is where we who live in the United States can make a real difference. A mass movement for debt relief, led by the Jubilee 2000 coalition in Europe, Africa, and Latin America promises to take on the dimensions and power of the anti-apartheid movement in the 1980s. And last year a handful of progressive organizations and members of Congress delivered the swing votes to block a $90 billion expansion of the IMF ($18 billion from the U.S.) in the House. The IMF eventually got the money, but the year-long fight significantly undermined the Fund's credibility and bargaining power throughout the world.
As the cracks in the Washington consensus widen, there will be further opportunities to help the rest of the world in its struggle against economic colonialism.