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International Economic Environment and Policy

Submitted by Md.Khurshed Alam
ID 529778
Topic : Joseph E. Stiglitz Criticism of IMF
Submission date

He sees how the politics affects the world economy. He traveled to more countries and acquired knowledge about poor people. policy. He has a good knowledge about how the markets work and where the market is failure. problem of economy and tries to solve the problem. He worked under Clinton´s administration. He is astonished about the organizational behavior. International Economic Environment and Policy 1 . He practically deals with US policy and looks how US policy affects the world financial institution for their own benefits and insert their own agenda into world financial institution. He got Nobel for his outstanding activities. Criticism of IMF. the economic policy of the poor country. He always tries to give something to the world economy. He can not belief that how conflicting roles of IMF damages the economy of developing countries. He is aware of about the roles of world financial institution. He always researches about the economy. He criticizes strongly about IMF in his book name ´´Globalization and its discontents´´. writer and strong critique. management system of the IMF. IMF conspiracy makes him strange. Stiglitz Joseph E. the economy of poor country . Miss management and miss practice of IMF compel him to tell something about IMF. Stiglitz is an eminent economist .Joseph E. model.

We also keep in mind about interest rate policy of IMF. IMF is criticized because they want to use one policy for the rest of the world. International Economic Environment and Policy 2 . the large no of firms faces the bankruptcy problem.1. To use one policy for all country produces new challenge and another economic problem. the government spending is necessary for the development of economy for the betterment of public life. The guideline is necessary but we have to assure that is it actually contributed in developing the country. By taking the loan the country wants to utilize it in various sectors in order to ensure productivity of the loan. he must spend on Criticism of IMF. 2. If the government minimizes its expenses on medical care the life of the poor people become tough. So. Like the imposing policy of Latin America in 1980s tried to adopt in Thailand crisis in 1997. 2.To push one policy : IMF is the watchdog of the global economy and they should produce the policy that may suited to the individual country´s economic condition. Policy for poor country is valueless for rich country because economic condition. education . by taking the loan from IMF the country faces extra external pressure. But it creates problem in other side. Again.IMF always interested to impose high interest in order to make ensure the suitable position of exchange rate. A county takes loan at that position when its condition become worse or want to pumping the economy.These types of malpractice identified by Josef and as per his opinion IMF is not well enough to realized one´s country economic condition but the developed the policy. strength. The increase interest rate appreciate the home currency because demand for the home currency increases and it losses competitiveness in the world market as well as can not survive more in the competitive world. If impose high taxes the daily life of the poorer people become hard. No country wants to create new problem by taking the loan. IMF is interested about privatization and deregulation. But for this .The loan policy of IMF and its consequences: IMF is an organization that ensures their benefits before giving the loan. Finally. dwelling places. For example. medical care and social safety net for the welfare of the people. The policy paper of IMF creates existing problem severe to severe. So. cloths. As a result the country losses its export. The government is the father of the country and he has to look after the happiness and sorrows of the people.Downsize the government budget: The government should spend on for food. Every country almost faces low or high economic pressure internally and externally. IMF also tries to established based country and apply the same guideline for another country. requires a clear guideline . To develop policy separately for developed and developing country. Because it has to follow the guideline of IMF. weakness are not same. All of these factors raise the questions in Josef Steiglitz mind that how can it is possible to develop of a torn economy by obeying the rules of IMF.

income levels and the government interference are the major ingredients that shape the exchange rate. Suppose he has to spend on maintaining roads. It can do only for a small no of industries.treatment is natural and the government should ensures the necessary fundamental rights of the people to accelerate the development of the economy. bridge and others structures of the economy. And we can not identify a single country as a standard for the other country for managing exchange rate because the case is individual. 4.Modern policy turns into vain/ IMF in Washington’s blueprint : A. how the private firm reduces the cost. to observe carefully the ups and down of the respective economy.So before advising for managing one country´s exchange exchange rate. To cut the expenses to make it balance . So it is clear that exchange rate is the parameter of the economy. The foundation of economy of every country also different . the law and order of the country break down. 3. Why IMF issues the loan? May be destabilize the economy. International Economic Environment and Policy 3 . Demand and supply of fund. to build new roads. The Economy of every country is different. If the government makes privatization of necessary goods or services like education then what happened? Private sectors come to fulfill the demand. So.If exchange rate varies it creates difficulties and affects the whole economy. The government undertakes different program for the balanced development of the country. But it can not be major goal of the country because it brings more disadvantages than advantages. So the individual country will monitor the exchange rate as per economic condition. inflation.What is the result of downing the expenditureunemployment. They take all necessary steps to reduce the cost. First of all the government can not privatize all the sectors because the market is not always able to ensure the demand of the people. The movement of exchange rate creates uncertainty about firm´s values and performance . It is basically unethical because from Criticism of IMF. riots and violence increases as well as peace disappear from the country.To focus on exchange rate: Exchange rate is necessary rate for the import and export. As a result one class of people can not afford the educational expenses. But. Privatization: Privatization basically is a decision of the country when she thinks that it is not possible to operate business with losses. Main goal of Private enterprise is to increase profit by reducing cost and thereby maximize the shareholders value. But the main goal is to reduce the employees. What does IMF make in Kenya in 1990s? Try to control foreign exchange market and the dishonest people take the opportunity to siphon of fund from one country to another country. So we can not compare between the economy of two countries. The policy makers remain busy by taking the loan from IMF to fulfill their goals and country development is almost impossible. So. interest rate. It creates an imbalance competition also raising the prices and even reduces the quality. the balance budget is the condition of IMF.

Opportunity cost also associated with reserves. this type of destructive policy basically not suitable for the developing country´s where the maximum no of people lives below than the poverty line. to pay low salary. Though IMF suggests for privatization guided by commercial enterprises. . So.where the firing staff will get new jobs? How can he operates his family. If they get the market try to enter at that market by liberalization policy. If the country requires funds it can attract foreign investors to invest as a Foreign Direct Investment. It also creates unemployment problem. Before opening the market needs to design all internal infrastructures of the economy. They are always seeking the market and continuously watching whose has a good and potential market and want to transfer their volatile fund to less risk free country. the government should consider the net benefit of privatization. the people get the products and the services at affordable prices. It is also indirectly a cost to the government because the government spends money for each person of the country . ´´china open the Criticism of IMF. The backbone of the country gradually decays and the country become dependent on the other country . This is actually bad concept for the economy. He becomes burden to the existing member of the family. They take the speed money from the businessman and create the opportunity for the businessman to purchase the state enterprise at low price. It also creates political turmoil in the country . IMF believes that if the market is open then the growth rate of the economy will increase. Open market policy does not win : To open the market is the hidden policy of USA. So. For the betterment of economy requires a criteria regarding open market. If the competition persists in the economy. By opening the market to jeopardize the legislation and to facilitate to come fund from abroad for short period and this fund also not suitable for investment because it has to pay within short period. If the country does not open the market imposes different embargoes so that their product can not compete into global market. International Economic Environment and Policy 4 . In order to meet short term loan payment at a notice the bank requires always to build up a reserves. but not losses the consumption. but reduces the consumption. what is the benefits to take loan and to reserve it at low interest rates and to pay high rate. There is also important that they require a divergence and skill manpower in order to compete with the global sophisticated market. So. more unemployed people and social problem crate burden on the economy. Those who have more savings less consumption need not to open the market rather it should invest its surplus fund in another country after meeting the domestic needs.If the persons losses job. B. Open market undoubtedly creates competition. By opening the market to turn the country into foreign market. For example. they protect their business position through trade policy. They want to show that some industries are not performing well. A large no of people leads their life in inhuman way. Another important matter is that a no corrupt official take the opportunity of privatization. On the other way.It also discourages to develop new industry and business is going on the existing industry. Privatization is benefited for the economy if it increases the employment and creates new jobs. Does all the population in every country of the world understands it ? The maximum traders in the developing country are not well educated. it is an ambitious policy because it damages growing industry of the poor country. It looks like call money of the bank. IMF always want to open the market as quickly as possible. indirectly affect to GDP To cut the salary. But. there is no opportunity to create new jobs to serve the existing unemployed people of the economy and the job market is shrink gradually.

IMF interested about open market. the employment is lower and to take measures to increase the employment. employment. to run painful program creates another problem. By opening the market making investment expensive. As a result . The people of the country who do not get food two times in a day. the expenditures of the people reduces. But it is true that mild inflation is necessary for the growth but excessive inflation hampers growth and employment. It is not always possible to develop balance budget because it is commercial thinking. They think that if the countries do it. So. like to increase government expenditures and to reduce the tax burden and diminish interest rates. Final result. But during unemployment situation to take an austerity program creates more unemployment. it pushes the poverty a head by reducing incomes. As a result. So.market after 20 years ensuring the solid economic structure´´1. It does not create job but make challenge for the existing job because huge supply of labor. to reduce the government expenditures and to up the interest rates. reduces the existing total demand. Stiglitz. creates saving and saving makes to investment. They think that deficit budget is responsible for lower growth. no more investment. ´´Sub –Saharan is the most leading poverty country who losses their income 2% for trade liberalization ´´2. It means excess money goes to the government.Joseph E. Stiglitz. Free market means expensive market for the poor countries. If demand is low no supplier comes to set up for investment in the long term. Say . So .p-60 2 Globalization and its discontents. discourages the investment. they suggest for balance budget. They think that if the government spends more than income creates inflation. It creates conflict among policy holders. Poor people can not finance their investment at low cost. entrepreneur tries to take the opportunity to pay lower salary than before or not raising the existing salary. savings are low. 1 Globalization and its discontents. an inflation is an macro economic factor. we should not only think about inflation but also think about other macro economic factors like growth and employment .p-61 Criticism of IMF. So. then a better future waits for them. Short term discomfort creates long term problem: Before adopting cost crashing program at fist truly identify is the employment condition of the economy is down or up. So . Again open market is not suitable for all. The economy goes down further. Like. how can they ensure the concept of free market . To take the loan to solve the one problem but in hidden to birth up another problem Open market means unregulated market. So there is a clear lack of guidance in IMF policy regarding open market. social unhappiness and instability. no employment. International Economic Environment and Policy 5 .Joseph E. Without understanding the economy. But their policy suggest the regulated market. why the government? The aim of IMF is to reduces money supply from the economy during downturn. C. The people spend more for the same product and the reduces the demand and total demand of the economy is low.it creates labor movement. IMF has inflation fever.We have to understand that during down economy. They try to monitor exchange rate and create conflict regarding open market. What happened? No more demand.

if one does not go to the job one day then he has to leave without food . They think that they know more than the others. who is the inferior or who is the superior power. Basically women education. For this. to reduce school expenses. To generate the ideas.D. To ask for democracy but follow autocratic manner: Criticism of IMF. If there is no coordination then objective of the organization becomes ruin. what measures should be effective. One staff does not what the other does. They are the IMF staff.So. USA is not interested on this aspect. developing countries take especial measures in order to educate the women with the men. 5. 6. leaders. To produce the policy without discussing : It is necessary to discuss with that country for whom the policy will be developed. to discuss about the problem. development of the economy is not possible. In poor countries women are out of date and can not take part into development activities. IMF thinks that US policy is right. etc. To achieve the organizational objective requires coordination. how can solve the ongoing problem. But African countries showed that if the government spend for education then the literacy will go up as opposite to USA. to take the money for the education will not increase the percentage of literacy rather it will damage the existing literacy and decreases the percentage of education in future significantly . Takes a no of program like adult free education. They don´t know how to write and read and easily cheated by 3 rd person. As a result they create Ivory Tower planning for the poor country. Maximum no of people in the developing countries are day labor to earn daily and lead their daily life. But. But IMF does not consider it. IMF produces the policy but there is clear evidence that IMF has a coordination problem. 7. economists can get more ideas. By discussing with different groups. USA does not understand the real scenario but advocates the policy and IMF support it and implement it in different countries. who roles on the policy. How can it possible? To send the children to school is not necessary for the poor family.So. To earn money is mandatory in order to leave. By utilizing that can produce a suitable plan to solve the problem. If the large portion of population remain in darkness. International Economic Environment and Policy 6 . to offer technical education with traditional education. USA thinks that to cut government expenditures on the school education and to charge the fees for the education to raise the no of enrollment. For example. IMF is suffering from coordination: Coordination is an important part of management. To reduce educational expenses: For the development of economy education is also necessary input.

policy makers wanted to suggest about possible merits and demerits of the respective policy. It is the part of long term plan of the government . But what IMF does? They have workforces to analyze the economic condition.IMF always opines about democracy. But in reality the poor country has good divergence economists than the IMF has. His thoughts are the root of IMF. 8. different groups.He makes it carefully considering economic trend and take the decision aiming to optimal economic development. On the basis of economic condition he develops his portfolio plan in order to improve the country in a right way. to develop the policy for the individual country. 11. He believed that market is failure. failure to incorporate the information of poor countries. 10. Even. IMF interferes in the middle . Aiming to portfolio. Fails to achieve mission: Mission carries the message to the people what one´s wants to do. In order to make happy of IMF it has to create a new plan hurriedly. The vigilance teams go to the country who have no experiences about the respective country. But IMF is not interested to listen others. As a results the policy of IMF becomes obsolesce and it adds fuel to the existing crisis. Keynesian is the pioneer of IMF mission. obtains more valuable information. Skills workers are helping to achieve the common goal of an organization. But. they do not want to listen what poor countries leaders want to suggest. But IMF modifies its mission with market economy. It is totally opposite with Keynesian thoughts. It establishes in order to remove global instability and acting together with all other countries of the world. If there is democracy . It is not one day plan. he designs his fiscal and monetary policy. Unskilled staffs: Human resources are important factors for managing successfully of an organization. the development of the country becomes slow and loss the direction. He can take a no of steps to make better prosperous country. global stability and also failures to harvest the benefits of new mission. Democracy is also necessary for the development of policy paper. how does he achieve the goal.Well wisher of USA: USA is the one country in the world who always makes politics with the other countries of the Criticism of IMF. As result. International Economic Environment and Policy 7 . Excessive pressure on the Policy makers: Government is the supreme authority of the country. IMF is unable to stick with its core mission. 9. But in making policy they make a mistake.

it is not always possible for USA to invade another country directly. looses the trade policy. if demands equals to always supply then there is no unemployment. Good governance is also an important managerial aspect that shape the organizational policy. If there is a problem in selecting input or in inappropriate system or process one can not get viable result. But they have inertia about free flow of information. For example. They stickly control the information so that outsiders . As a result the country turns into hunting palace for USA. This accountability is rare in IMF.p-34 Criticism of IMF. As a result its policy. good governance and non transparency : Accountability is an essential part of democratic body. responsibility and accountability who will control the organization .IMF develops the policy in a way so that other country open the market. By appraising the information one can easily assess the performance of an institution. procedures are unable to achieve the objectives.Joseph E. But in reality it does not correct. The organization is unable to pick up the goal. They love secrecy. including stakeholders and stakeholders can not acquire the information. To make the truth his dream he takes help of IMF and pressure on IMF to develop the policy in favor of USA.Using ancient model: Every scholar tries to build up a model in order to solve the economic problem .Joseph E. progress. It ensures that everything is going under preplanned. But if there is no organogram about authority. IMF avoids unemployment issues and thinks that . If deviates the plan then take the action. They are not interested to tell about possible defects of the policy.p-51 4 Globalization and its discontents. So. International Economic Environment and Policy 8 . they violate the fundamental rights of the people and the country. 12. procedures. 3 Globalization and its discontents. If there is no accountability then the structure of the management breaks down.To inform the people with necessary evidence that what are doing. Stiglitz. The approaches that IMF uses are misleading and conflicting and arises a question about its intellectuality to handle global economic stability.Then decides which will be used in the model as an input in order to get optimal output. Free flow of information is also necessary for managing the organization from outside. Accountability guides the staff what to do and what not to do for the welfare of the people. So it is the time now to assess the performance of this global institution. For example by using the model.world. what are the achievement. By imposing control on information sharing. Always tries to enter into another country physically or by products or by services. ´´ they are working jointly with the World Bank but do not supply the all information to the World bank!´´3 13. Stiglitz. How can we ensure accountability?. ´´ they miss calculate US unemployment rate 6% instead of 4%´´ 4. Lack of accountability. future plan. The US MNC takes the opportunity and increases their ventures.IMF has poor governance and they are governed by the rich countries.

lack of experiences. Basically for the poor country because their economy is based on fragile structure. 15. ´´Stan Fischer joined to Citigroup from IMF and Robert Rubin. If all the information reflects in the economy and other assumptions are established then the market is called perfect.p-19 Criticism of IMF. What happened after implementing that policy. If thinks that market is the decision maker then there is a big failure It ultimately reduces the growth of the economy and increases the poverty. But. IMF escapes the responsibility If the country faces more crisis in the middle due to follow the suggestion of IMF. it is not wise decision to leave everything on the market. and later joined to Citigroup´´5. Influences of Outsiders: Neutral decision makers are required for making the policy.To push inappropriate policy or techniques: After assessing the problem they push forward some programs into a country in order to bring stability. But it is not possible because lack of competition and not true information. 16.This model indicates that market will determine everything. For example. 14. The programs reflect their unskilled behavior. IMF believes that it increases growth. They want to bind the country with a rope. To take loan or help not means that to sell the country. International Economic Environment and Policy 9 . In reality IMF operates by vested groups. They set up massive challenge for 5 Globalization and its discontents. IMF declares that the leader of the country does not practise the suggestion of IMF. If biased people enter into decision making.Joseph E. But does it work? Does the market work efficiently. But the question is that how can these program enact by the other countries? These programs were developed in an unproper way. So it is not possible to IMF to design sound policy for the world poor country because they want to play business game. To embrace poverty.Threat of sovereignty: Every country is independent and possess the right to act anything for the productive economy. Stiglitz. By taking the loan the country faces the sovereignty problem because for every economic decision he has to take permission from them. So. At that time. Though that are not suitable but the country is compel to obey it because they require financial assistance. Outsiders like politicians and businessman use their mussel to produce the policy in favor of them. the treasury of IMF came from an Investment bank. in accordance with USA . the decision will not bring any benefit but brings benefits for the certain quarters. political instability and damage the existing economic structure.

Stiglitz. Try to link between the base country and problem facing country.p-48 Criticism of IMF. USA want to implement its political agenda through IMF.It is now a political institution: We have to understand carefully the role of IMF and United nations are different. Developed countries use them as a beneficial vehicle.the developing countries. After examining the policy of base country. 18. But if the communication is not two ways it violates the proper system of communication because in this sender only sends the 6 Globalization and its discontents.p-46 8 Globalization and its discontents. they take times. They want to take the opportunity from crisis country. The IMF works for bringing world economic stability and UN works for world political peace . Their hidden political behavior irritates the developing countries.Copy paste activities: If any country comes to IMF for help. They want to know about the current law of the country in accordance with the terms and conditions. Another regretting matter is that if developed countries violate the laws that is not a problem for them but if the poor countries break the laws of IMF. interest rate. This paper reflects one side opinion of IMF. taxes. open financial markets and privatizations are prolonged the crisis. Later. they travel to the country as an eyewash in order to find any gross mistake in their policy and final comment. And this agreement paper works as a political manifesto of the other countries.p-46 7 Globalization and its discontents. Before sanctioning loan one has to agree with the terms and condition of IMF agreement. Like´´ USA neglecting the laws avoiding the suggestions of IMF regarding inflation earned a massive growth in 1990s´´8.But if we carefully diagnosis of IMF activities we get political ingredients in their on going activities.One way communications: Negotiation is an important step to solve the problem. 17. International Economic Environment and Policy 10 . 19. Stiglitz. Before going to the country they develop a policy paper. to get the idea about exact economic conditions and demand of the economy. For example. they make a copy and paste it to the new policy for the loan seeking country. For example. often we see riots and revolt against IMF in different countries.´´ US Treasury wants to impose political burden on Korea that most American would have found unacceptable for themselves´´ 6. They want to build up a colony by issuing the loan.Joseph E. As result . to generate more valuable information.Joseph E. Basically.´ ´in 1997 through an agreement they want to open Korea´s market for Japanese products´´7.Joseph E. Stiglitz. stands as a great problem. Certain conditions like trade barriers. In order to prepare the policy they search another country´s policy.

Though it is poor country but they maintain their sustainability like almost other poor countries in the world. they are not agree to open the financial market. International Economic Environment and Policy 11 . So. So. Ethiopia: Ethiopia is a war torn country. ´´But World bank continues their aid though IMF cancel the aid even up tripled´´11. They know how to operate the economy on the basis of income from inside and outside. The income sources of the government is revenues and taxes. tough condition. IMF may cancels the loan. is this poor country is fit at that to compete with global firm? Has it necessary human resources. It is an agenda of other countries. IMF want they should show the taxes in the revenues side of the budget. Stiglitz. They are poor and fighting with droughts. pressure of lobbying they continues their aid program 9 Globalization and its discontents. They get financial assistance from the others as well. The country leader is afraid because if the country leader raises the question. But. This is happened for IMF.Globalization and its discontents.p-42 1 0. They want that the interest rate of the economy will determine by market forces through open banking system. ´´ They learned lesions in Kenya from 1993 to 1994 where 14 banks are collapsed due to open banking system´´10.Joseph E.Globalization and its discontents. They are trying to build up their economy. Most of the people leave in rural areas.p-32 Criticism of IMF. Finally by considering statistics. financial ability to deal with globally.p-32 1 1. They accumulate all powers of negotiations and show negative attitudes towards the discussion. IMF raises a question that Ethiopia does not implement IMF´s policy and macroeconomic performance was not good and resumed their aid schemes.Joseph E. South Korea and for other countries´´9. ´´This is happened for Ethiopia. Criticize of IMF for conflicting roles in some countries: A. Question is that. They believe that if they liberalize. IMF wants they should spend on the basis of earning income from taxes. IMF want to liberalize Ethiopia´s capital market and want to open its banking system. Stiglitz. this policy was avoided by the developed countries at that time. it will bring devastating impact on the economy and make poor people to poorer and will loss their last means of life like farmers will fail to get credit at low cost. cost of production will increase and the level of farmers income will decrease. They try to reduce poverty by cost crashing program and designing policy. IMF worried about their incomes and budget policy. Stiglitz. The receiver country does not raise any question because they have no other way. They only supplier of suggestion but not interested to take the suggestion. Why liberalization? To create opportunity for the multinational firm to enter and to compete .message and receiver only receive the message and no feedback from the receiver.Joseph E.

invite Multinational Firms. Botswana is a poor small country and annual income is almost lower than any other developing country. political violence. IMF comes with USA policy to rescue the economy.Joseph E. reform measures and other conditions make the economy worse. East asian market produces good return for investment. East Asia: East has a tiger economy. social peace employment rate are comparatively good. they want to politicized the east asia and want to inject their poison into east asia. Earlier IMF tried to push their own staff at different countries. The market of east asia is also important for USA because their market is almost in saturation level. savings. They are operating their economic with their own idea. Stiglitz tries to help the crisis country with the policy and advices.B.By doing so they want to ensure their benefits and implement their policy. The recruited persons are also carry the bad reputations and background was commercial oriented.p-37 Criticism of IMF. In one word they are the model for the rest of the world. The county faced a financial problem due to the income reduces from cattle and diamonds industry. to open their capital account. C. political conditions. Results. So. Their policy make no investment. As per US policy east countries to free their market. ´´After enacting IMF policy they face another problem like liquidity problem and fiscal austerity make the situation worse´´12.privatization. But they have good governance at the root level. To rise interest rate. without understanding the US policy. increase unemployment. When IMF failures in his activities tries to make understand IMF that their policy is wrong and it will creates more 1 2. History said that opening the market. without designing internal economic structures. Cattle and diamonds are their earning sources. The IMF persons design policy for Botswana and even they recruited the staff for the central bank of Botswana. crisis start from Thailand and spread all east asian countries. For Example. poverty reduction. and regulation free market do not bring benefit for the country. Stiglitz.Globalization and its discontents. their growth. opportunity to generate more return by investing capital. Botswana: IMF prefers positioning of their own staff. Joseph E. East asian leaders don´t know the sensitivity of the poison and impact of the poison. They have low level of trust on the developing countries . social impeace. International Economic Environment and Policy 12 . reduces government expenditure . poverty increasing.

He strongly opposes with IMF policy and advices. International Economic Environment and Policy 13 . Criticism of IMF. He thinks that the IMF proves its ineffectiveness in solving world financial crisis and it is unable to bring stability in the world economy.problem than the solution. He opines that the total reforming is necessary for IMF.