A WRITER AT LARGE: Hypocrisy and the IMF ; the International Monetary Fund Believes in Free Market Capitalism - but Only for the Developing World, Not for Rich Countries. Joseph Stiglitz, Former World Bank Vice-President and Nobel Laureate, Explains to JOHANN HARI Its Intellectual Incoherence and Moral Bankruptcy

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Picture a man who dedicates his life to warning the world about the humanitarian and environmental disasters that the International Monetary Fund leaves in its wake. You are, I'd wager, envisaging an earnest, sandal- wearing Green Party member, or a balaclava-wearing anarchist kicking in a McDonald's window. I'm pretty sure that you are not picturing a Nobel Prize-winning economist who was the chief economist and vice-president of the World Bank until three years ago.

Joseph Stiglitz is a very unlikely radical. He looks like a caricature of a Wicked Capitalist from a Bolshevik propaganda poster circa 1917. You know: the ones where a pig-like businessman rests his feet on a perspiring, emaciated worker and spoons caviar into his fleshy gob. Stiglitz is round and portly, with braces to hold up his trousers. He has a big grin, worn on a mouth that looks like it was born to hold a fat cigar. Yet he is one of the most important left-wing economic and political thinkers of our time, and his agenda cuts to the heart of the most urgent moral issue in the world: mass poverty.

When Stiglitz joined the World Bank, he thought he was entering an institution dedicated to lifting the most desperate people out of poverty. "I was chairman of the Council of Economic Advisors in the US before I joined," he explains, "so when I went to the World Bank and was asked to look at a developing country's finances, I would always ask myself one question: if I were the head of their Council of Economic Advisors, what would I do to get recovery in their economy? How would I reduce poverty?" But it soon became obvious that this was not what the IMF was all about at all; he had fallen for a naive misperception of its purpose.

"That was not their mindset," he says now. "They were interested in one thing. They looked at the country and thought, `they need to repay the loans they owe to Western banks. How do we get that to happen?' So they would never ask, `should we give this developing country a bankruptcy procedure so they can have a fresh start?' They thought that bankruptcy was a violation of the sanctity of contracts, even though every democracy has a bankruptcy law for people who have persistently failed. They were interested in milking money out of the country quickly, not rebuilding it for the long term."

His three years at the World Bank were not what he expected. "I saw first- hand the devastating effect that globalisation can have on developing countries, and especially the poor within those countries," he says. He found that "decisions were often made because of ideology and politics. Many wrong-headed decisions were taken, ones that did not solve the problem at hand but that fit the interests or belief of the people in power ... Decisions were made on the basis of what seemed a curious blend of ideology and bad economics, dogma that sometimes seemed to be thinly veiling special interests. It is not just that they often produced bad results: they were antidemocratic."

He found that "the IMF's remedies failed as often as they worked. IMF structural adjustment programmes led to riots and hunger in many countries; even when the results were not so dire, even when they managed to eke out some growth for a while, the results went disproportionately to the better-off, with those at the bottom sometimes facing even greater poverty."

Of course, the IMF was not wilfully malicious, devastating developing economies for fun. No; it had become saturated with a new and extreme ideology which its exponents sincerely believed would help the poor - even though its basic premises were flawed. The IMF was hijacked in the early 1980s by a sect Stiglitz calls "the market fundamentalists", who preach an extreme variant of capitalism that has never been tried anywhere in the developed world. They formed a new "Washington Consensus" between the IMF, World Bank and US Treasury about how developing economies should be run. …