Imf 's Policies During The Economic Crisis Essay

Imf 's Policies During The Economic Crisis Essay

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a noble prize winning economist, Joseph Stiglitz analyzed the IMF’s policies during the economic downturn in East Asia, in his Globalization and its Discontents, Chapter 4. A single event the collapse of the Thai baht on July 2, 1997 unexpectedly threatened an economic downturn in its neighbors, Asia, and eventually the entire world. The impressive development of East Asian’s economies was decreasing poverty, “The East Asia Miracle”, stumbled as the economic crisis begun with the fall of baht, which affected its neighbors as well, taking many of the region’s banks, stock market, and even entire economies down. The International Monetary Fund (IMF) imposed policies that were supposedly help resolve this economic crisis; however, according to Stiglitz, the IMF policies not only did not improve the situation but also worsened the situation. Moreover, IMF policies of, excessively rapid financial and market liberalization was the cause of the crisis and responsible for the economic downturns.
Regardless of the economic growth in East Asia, the IMF has been avoiding to conduct a study in East Asia because those countries had not followed the Washington Consensus. The IMF stated that East Asian nations are in serious need of reform because their institutions and governments are corrupted. Stiglitz argues that the East Asia “Miracle” was not a coincidental miracle, but that their governments’ industrial policies allowed the East Asian nations to save and invest well concurrently and resulted in tremendous economic growth. The East Asian state-directed policies and the policies of the Washington Consensus besides one similarity, the emphasis on the macrostability, were in stark contrast to one other. The policies of the Washington Co...

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...ged; there was a possibility of resulting in default. The IMF policy of higher interest rate resulted in those firms in distress, exacerbated the downturn and caused contraction in supply and demand concurrently. The IMF’s defending on the policy is that higher interest rate would restore market confidence; however, this policy did not restore confidence because both foreign and local investors were discouraged to invest in those firms that were unlikely to repay. The IMF also argued that high interest rate was essential in order to prevent a collapse of the exchange rate; however, an increase in interest rate did not stabilize the currency. Stiglitz argues that the issue with IMF is also the desire to have control regarding the denying of Japan’s offer to establish the Asian Monetary Fund, which probably would have understood the situation in the East Asia better.

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