Stiglitz: abolish the IMF

Henry C.K. Liu hliu at
Fri Aug 16 20:27:46 MDT 2002

Stiglitz keeps reminding me of McNamara, a former president of the World
Beginning in 1961,  President Kennedy began to send military advisors to
Saigon to explore the question whether local
Vietnamese forces could, by training, be brought up to the level of
expertise required to fight a guerilla war against troops of a people's
liberation army from Hanoi. His Secretary of Defense was Robert S. McNamara,
one of the so-called Whiz Kids at the Ford Motor
Company, who with his systems analysis and mission oriented deployment
assure both
Kennedy and Johnson that it would be a sure win. In 1995, McNarmara
completed his memoirs, In Retrospect: The Tragedy and
Lessons of Vietnam. This book revived all the anger
of those sent to Vietnam and were lucky enough to have survived, though most
not intact. Some 58,000 Americans and over a million
Vietnamese died in this bloody conflict. McNamarra now says "Yet we were
wrong, terribly wrong. We owe it to future generations to
explain why."  The like of Stiglitz and Krugman are now singing the same
McNamara tune.

The market fundamentalists were wrong from the beginning just as Robert
McNamara was wrong from the very beginning of his term
as Secretary of Defense. President Kennedy who had  just been found wrong in
the Bay of Pigs Cuban disaster was not well served by
his new man at the Pentagon. On pp 32-33, McNamara wrote "The irony of this
gap -- Asian experts -- was that it existed largely
because the top East Asian and China experts in the State Department -- John
Paton Davies, Jr., John Stewart Service, and John Carter
Vincent -- had been purged during the McCarthy hysteria of the 1950s.
Without men like these to provide sophisticated, nuanced
insights, we -- certainly I -- badly misread China's objectives and mistook
its bellicose rhetoric to imply a drive for regional hegemony."
Blaming others for his mistakes was a theme appearing in McNamarra's book
throughout its pages.  The irony of the economics gap
was that all the economists who had reservations about the extravagant
promises of free markets were purged from both government
and academia for two decades.

The late Barbara Tuchman, author of March of Folly, had a view quite
different from McNamara's. Barbara Tuchman listed dozens of
experts that McNamara could have consulted before any decisions were made by
President Kennedy. The list was long and had many
well-informed East Asian and China experts. She also mentioned university
professors in the United States who might disabuse
McNamara of his obvious illusions  in a country that never really showed the
enthusiasm or will to rise to American expectations.

The regime in Saigon was corrupt, something McNamara could have learned for
himself. Ho Chi Minh was a Vietnamese  nationalist
rebelling against French colonialism, a fact that no one in authority could
possibly fathom. Tuchman asserted neither Kennedy nor
Lyndon Johnson ever had a realistic formulation of clear objectives. Both,
like McNamara, were mesmerized by their anti-Communist
stance on virtually all policy decisions. Johnson was to lose his presidency
because he failed to see the consequences of his own
actions. He announced in 1968 that he would not seek reelection, thus
abandoning the field to Richard Nixon. Elected in 1968, Nixon
authorized the secret bombing of Cambodia. Anger spiraled out of control,
even to the point where four students at Kent State
University were killed by panic-stricken National Guard personnel.
Similarly, market fundamentalist were mesnerized by the
anti-government, anti-socialist stance on virtually all policy decision.
The supplyside economics operated on the assumption that take
care of the rich and the poor will take care of themselves. It eventual led
to terrorism against the heart of financial capitalism where
thousand of innnocent people died.

In the early 1980s, Nicaragua was among the most destitute country in the
Western hemisphere. In 1979, President Anastasio Somoza
Debayle was overthrown by local nationalists, ie., guerillas under the
leadership of Augusto Sandino. The Sandinistas established a
government not welcomed by the United States.  A civil war ensued in which
Washington backed the opposition to the Sandinistas, the
so-called Contras.

President Reagan, a militant anti-Communist, described the Contras as
"freedom fighters," when in fact many of the Contras were
Somoza supporters. Reagan's attitude exploited by those who opposed
liberating development in Nicaragua antithetical to corporate
America's interests. Reagan allowed Nicaraguan policy to get out of control.
That country sued the United States in the International
Court of Justice (ICJ), a court established by the United Nations.

This action charged the United States with numerous violations of
international law and of the Charter itself. The United States argued
that the ICJ was without jurisdiction to entertain the suit captioned Case
Concerning Military and Paramilitary Activities in and Against
Nicaragua. The text of the court's ruling on the merits appears at 25
International Legal Materials 1023 (1988).

The text is a stunning indictment of American policy with respect to
Nicaragua. The United States was in clear violation of Article 2 (4)
of the United Nations Charter. Among other things, American mercenaries
mined Nicaraguan harbors, intervened in the internal affairs
of Nicaragua, committed aerial trespass into Nicaragua's airspace, infringed
on freedom of the seas, and killed and/or kidnapped
citizens of Nicaragua. In the economic field, the United States withdrew
foreign aid to Nicaragua, drastically reduced Nicaragua's sugar
quota, imposed a trade embargo and used its influence in the Inter American
Bank for Reconstruction and Development to block loans
requested by Nicaragua. The ICJ awarded Nicaragua reparations to be paid by
the United States for the wrongs committed by it.

They were never paid. However, in 1993 the International Monetary Fund and
the World Bank, both virtually controlled by the United
States ( with Stiglitz asChairman of President Clinton's Council of Economic
Advisers with cabinet rank), presented new demands of
unusaul severity to Nicaragua. Noam Chomsky's book, World Orders Old and
New, summarized them in part. "Unlike many others,
Nicaragua will receive no relief from its crushing debt. It must eliminate
credits from the Bank of Industry and Commerce, one of the
remaining state banks, and privatize enterprises and government operations.
These included such services as postal, energy, and water
to ensure that poor people really feel the pain -- they are for example
unable to give their children water to drink, if they cannot pay,
thanks to 60 percent unemployment. Nicaragua must also cut public
expenditures by $60 million, eliminating what little remains of
health and welfare services -- a figure that was selected for its symbolic
value; that was the sum shipped out of Nicaragua during the
previous year by the already privatized banks."

Stiglitz was a key player of the Washington consensus and an architect of
neo-liberal globalization in the Clinton White House before
he went to the World Bank, in a parallel career path with McNamara.
Stiglitz claims that a general consensus prevails regarding Brazil
as a vibrant democracy and a strong economy, with an activist governemnt to
balance free markets and to combat income inequality, a
sohphisticated economics awareness, a free floating undervalued currency,
and enlightened World Banks assistance.  It begs the
question then how such a healthy country got so sick?  Stiglitz asserts that
this IMF rescue package is "different", and that it has a
chance of success because it only requires Brazil to continue current
policies, without the usual IMF conditionalities of fatal austerity.
But didn't current policies get Brazil into its currenct fix? Sounds like
"take two aspirin and call me in the morning when (or if) you
wake up."

Stiglitz, allying himself with Sorros, repeats his belief that there are
fundamental flaws in the current global financial architecture.  It is
the height of untimely timidity for him to write that the failure of the new
IMF rescue of Brazil "should renew the resolve to understand
why the global financial system is operating so poorly."

Why? Because transferring wealth from the poor to the rich is an
unsustainable game.

Henry C.K. Liu

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