Posted on 20-3-2003
IMF
Admits Its Policy Was Dangerous
The International Monetary Fund has admitted that forcing developing
countries to open their markets to foreign investors could increase
the
risk of financial crises."The process of capital account liberalization
appears to have been accompanied in some cases by increased
vulnerability
to crises," the IMF said in a report. It also said there was
little
evidence its policies encouraged economic growth in poor countries.
"If
financial integration has a positive effect on growth, there
is as yet no
clear and robust empirical proof that the effect is quantitatively
significant," the report said.
The report, which was prepared by the IMF's chief economist
Kenneth Rogoff,
described the findings as "sobering". It went on to warn that
countries
should be cautious about integrating with the global economy
and should try
to achieve a balance by creating strong domestic financial institutions.
"The evidence presented in this paper suggests that financial
integration
should be approached cautiously, with good institutions and
macro-economic
frameworks viewed as important," it said.
Argentina, Brazil, Indonesia and Russia are among the countries
that have
followed the IMF's advice to open up to foreign investment in
exchange for
hundreds of billions of dollars in loans. As soon as there was
even a whiff
of economic trouble, foreign speculators pulled their capital
out, plunging
the countries into recession. The report also said only a small
group of
developing countries had attracted the "lion's share" of capital
investment.
The US is the largest shareholder in the IMF and has been instrumental
in
shaping its free market policies.
The IMF has been heavily criticised for its policies, not least
by the
Nobel Prize winning former chief economist of the World Bank,
Joseph Stiglitz.
Story from BBC NEWS: news.bbc.co.uk/go/pr/fr/-/1/hi/business/2863153.stm
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