Failure of the Fund

By Stiglitz, Joseph E. | Harvard International Review, Summer 2001 | Go to article overview

Failure of the Fund

Stiglitz, Joseph E., Harvard International Review

Rethinking the IMF Response

The world is just emerging from the Asian financial crisis, perhaps the most cat event to affect global capitalism since the Great Depression. While the United States emerged from this event unscathed--some might argue that it even benefited from the crisis as plummeting commodity prices reduced domestic inflationary pressures--many developing nations were not so lucky. Whereas the Great Depression induced a great deal of soul searching about capitalism's basic principles, the seemingly quick global recovery from the financial crisis and its limited effect on industrial countries have brought a more mixed response--self-congratulation on the part of some, renewed criticism of the impacts of globalization by others. In both instances, however, the global economic arrangements were clearly inadequate. The international financial institutions and arrangements established at the end of World War II to guard against another global economic depression are widely viewed as incapable of managing the modern global eco nomy. The International Monetary Fund (IMF), in particular, has failed to perform the tasks for which it was designed. Today, the institution requires serious reform to ensure a more stable global economic environment.

Beggar Thy Self

The IMF's philosophy has moved far away from its roots. In this past financial crisis, the IMF provided funds under the explicit condition that countries engage in more contractionary fiscal and monetary policies than they might desire. The money went not to finance more expansionary fiscal policies but, instead, to bail out creditors from the more industrialized countries. The beggar-thy-neighbor policies that were so widely condemned gave way to even worse "beggar-thy-self" policies, with disastrous effects both for the home country and for its neighbors. The downward spiral in the region accelerated as declines in domestic GDP led to cutbacks in imports, thereby reducing regional exports. The beggar-thy-neighbor policy at least had the intention of making the nation's own citizens better off. No such benefits resulted from the IMF's beggar-thy-self policies. A country was told to build up its foreign-currency reserves and improve its current-account balance; this meant that it either had to increase expor ts or decrease imports. But exports could not rise overnight--in fact, as the country's neighbors' incomes plummeted, the prospects for increasing exports were even bleaker. Thus imports had to be reduced without imposing tariffs and without further devaluation. There was only one way that imports could be reduced in these circumstances: by reducing the consumption and investments that relied on imports. The immiseration of those at home was thus inevitable.

There is a further irony in the policies that the IMF pursued: while the IMF was created to promote global economic stability, some of its policies actually contributed to instability. There is now overwhelming support for the hypothesis that premature capital and financial market liberalization throughout the developing world, a central part of IMF reforms over the past two decades, was a central factor not only behind the most recent set of crises but also behind the instability that has characterized the global market over the past quarter century.

The Indictments

There is now widespread agreement that the IMF response to the Asian crisis was a failure. Although exchange rates stabilized, interest rates dropped, and the world eventually emerged intact from the crisis, none of this turnaround can be attributed to the IMF when we judge the success of its policies by whether the downturn was unnecessarily long or imposed unnecessarily high costs on workers. Of the four crisis countries in Asia, Indonesia remains in deep depression. The political turmoil there has proven a nearly insurmountable obstacle, but there is little doubt that the magnitude of the economic downturn contributed to the severity of the social and political unrest, that the turmoil was anticipated, and that IMF policies contributed to the magnitude of the economic downturn. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)


1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Cited article

Failure of the Fund


Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.