STIGLITZ'S GLOBAL WARNING
December 9th 2007 10:37
STIGLITZ’S GLOBAL MEDIA WARNING ON THE PERILS OF PREMATURE CAPITAL MARKET LIBERALISATION
Joseph E. Stiglitz, Nobel laureate in economics, has written an article about financial hypocrisy which has been distributed by Prague-based Project Syndicate to over 332 newspapers in 133 countries, with a total circulation of 43.8 million copies.
He wrote the piece because this year marks the tenth anniversary of the East Asia crisis, which began in Thailand on July 2, 1997, and spread to Indonesia in October and to Korea in December. Eventually, it became a global financial crisis, embroiling Russia and Latin American countries, such as Brazil, and unleashing forces that played out over the ensuing years: Argentina in 2001 may be counted as among its victims.
He said that as the World Bank's chief economist and senior vice president, he was in the middle of the conflagration and the debates about its causes and the appropriate policy responses.
He wrote, “This summer and fall, I revisited many of the affected countries, including Malaysia, Laos, Thailand, and Indonesia. It is heartwarming to see their recovery. These countries are now growing at 5 percent or 6 percent or more – not quite as fast as in the days of the East Asia miracle, but far more rapidly than many thought possible in the aftermath of the crisis.”
He points out that back then many countries changed their policies, but in directions markedly different from the reforms that the IMF had urged.
“The poor were among those who bore the biggest burden of the crisis, as wages plummeted and unemployment soared. As countries emerged, many placed a new emphasis on harmony, in an effort to redress the growing divide between rich and poor, urban and rural,” he said.
“They gave greater weight to investments in people, launching innovative initiatives to bring health care and access to finance to more of their citizens, and creating social funds to help develop local communities.
“Looking back at the crisis a decade later, we can see more clearly how wrong the diagnosis, prescription, and prognosis of the IMF and US Treasury were. The fundamental problem was premature capital market liberalisation. It is therefore ironic to see the US Treasury Secretary once again pushing for capital market liberalisation in India – one of the two major developing countries (along with China) to emerge unscathed from the 1997 crisis.
“It is no accident that these countries that had not fully liberalised their capital markets have done so well. Subsequent research by the IMF has confirmed what every serious study had shown: capital market liberalisation brings instability, but not necessarily growth. (India and China have, by the same token, been the fastest-growing economies.)”
Stiglitz concluded his argument saying, “Following the 1997 crisis, there was a consensus that fundamental reform of the global financial architecture was needed.
“But, while the current system may lead to unnecessary instability, and impose huge costs on developing countries, it serves some interests well (eg Wall Street). It is not surprising, then, that ten years later, there has been no fundamental reform. Nor, therefore, is it surprising that the world is once again facing a period of global financial instability, with uncertain outcomes for the world's economies."
- From MediaBlab by Peter Olszewski via Factiva
Joseph E. Stiglitz, Nobel laureate in economics, has written an article about financial hypocrisy which has been distributed by Prague-based Project Syndicate to over 332 newspapers in 133 countries, with a total circulation of 43.8 million copies.
He wrote the piece because this year marks the tenth anniversary of the East Asia crisis, which began in Thailand on July 2, 1997, and spread to Indonesia in October and to Korea in December. Eventually, it became a global financial crisis, embroiling Russia and Latin American countries, such as Brazil, and unleashing forces that played out over the ensuing years: Argentina in 2001 may be counted as among its victims.
He wrote, “This summer and fall, I revisited many of the affected countries, including Malaysia, Laos, Thailand, and Indonesia. It is heartwarming to see their recovery. These countries are now growing at 5 percent or 6 percent or more – not quite as fast as in the days of the East Asia miracle, but far more rapidly than many thought possible in the aftermath of the crisis.”
He points out that back then many countries changed their policies, but in directions markedly different from the reforms that the IMF had urged.
“The poor were among those who bore the biggest burden of the crisis, as wages plummeted and unemployment soared. As countries emerged, many placed a new emphasis on harmony, in an effort to redress the growing divide between rich and poor, urban and rural,” he said.
“Looking back at the crisis a decade later, we can see more clearly how wrong the diagnosis, prescription, and prognosis of the IMF and US Treasury were. The fundamental problem was premature capital market liberalisation. It is therefore ironic to see the US Treasury Secretary once again pushing for capital market liberalisation in India – one of the two major developing countries (along with China) to emerge unscathed from the 1997 crisis.
“It is no accident that these countries that had not fully liberalised their capital markets have done so well. Subsequent research by the IMF has confirmed what every serious study had shown: capital market liberalisation brings instability, but not necessarily growth. (India and China have, by the same token, been the fastest-growing economies.)”
Stiglitz concluded his argument saying, “Following the 1997 crisis, there was a consensus that fundamental reform of the global financial architecture was needed.
“But, while the current system may lead to unnecessary instability, and impose huge costs on developing countries, it serves some interests well (eg Wall Street). It is not surprising, then, that ten years later, there has been no fundamental reform. Nor, therefore, is it surprising that the world is once again facing a period of global financial instability, with uncertain outcomes for the world's economies."
- From MediaBlab by Peter Olszewski via Factiva
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