Assignment:
There are many views of the state of the global economy in the late Summer early Fall of 1998. Below are some of these views. From your reading of Commanding Heights (Yergin and Stanislaw), current news accounts, research into various economies and Macroeconomics (Dornbusch and Fischer), critically analyze these statements as to the type of policies that national economies and the IMF should pursue over the course of the next few years. Has the free market system of capitalism failed and the "battle between government and the marketplace that is remaking the modern world" (Yergin and Stanislaw) tilting toward government? Or, is there a middle ground that needs to be reached with a global regulatory structure created that makes countries and their financial systems more transparent and less tied to "crony capitalism"? Express your views, but back them up with fact and supporting argument.
1. The Economist (September 5, 1998) "The World Economy on the Edge: The risks of a deep global recession are increasing. But it can be avoided so long as policymakers heed some lessons from history."
2 The Economist (September 5, 1998) "The Economist all-items commodity-price index has fallen by 30 percent since mid-1997, to its lowest level in real terms for over 25 years. The prices of industrial commodities are now at their lowest in real terms since the 1930s. This has severely hurt commodity producers, not just in Latin America and Africa, but also in Australia and Canada." (add in the U.S. farmers).
3. The Economist (September 5, 1998) "Capitalism in retreat? A related and more worrying backlash against the free markets is the increasing interest on the part of politicians and economists in market intervention or capital controls as a solution to the crisis.....On September 1st, Malaysia imposed strict controls on capital movements. And respected American economists are also now arguing the virtues of capital controls. This, he (Paul Krugman) suggests, would break the link between domestic interest rates and exchange rates to get their economies growing again....Indeed, the biggest risk now to the world economy may lie not so much in a deep recession, which could be averted. It is that there may be a wholesale retreat for free markets."
4 Robert Kuttner (Washington Post, September 7, 1998, p. A25) "Free Markets and a Free Fall World Economy. Economic reconstruction after World War II accepted the necessity of a mixed economy. In that era, the United States and the International Monetary Fund recognized that emergent economies could no be the prisoners of private speculative capital. The postwar system regulated private money flows and stabilized currencies to allow nations to develop. Today's IMF, perversely demands exposure to speculators as a precondition of assistance....What we need is a program of stabilization and reconstruction in the spirit of the post-World War II years, with limits on speculative money flows and more development aid."
5 Washington Post, December 22, 1997, p. A1) "IMF Credibility Is on the Line In Asia Bailout, Agency Should Rethink Rescues, Some Critics Say, 'Since the time the IMF has signed each Asian bailout program, the respective Asian currencies have continued to plummet,' said Jeffrey Sachs."
6 Jeffrey Sachs (The Economist, September 12, 1998, p. 23) "Global Capitalism, Making It Work. "Global capitalism genuinely is the best chance for the developing world to gain a foothold on the economic-growth ladder; but with current institutions, global capitalism will not succeed widely enough or credibly enough to create a stable world system.... The IMF bought into the investment bankers' mantra: exchange-rate stability above all else.... The more these economies tried to defend their currencies, the more they incited panic."
7 George Soros (The Wall Street Journal, September 15, 1998, Op. Ed) "The Crisis of Global Capitalism. ...there remains the urgent need for Congress to authorize an increase in the capital for the IMF....Bailouts did encourage foolish behavior by banks and other lenders, which could count on the IMF when a country got into difficulties (a moral hazard problem). But, the moral hazard now operates in the opposite direction, in not enabling the IMF to do its work when it is most needed."
8 Henry Kissinger (Washington Post, October 5, 1998, p. A21) "Perils of Globalism, The IMF is no longer suited for dealing with economic crises. The IMF must be transformed. It should be returned to its original purpose as a provider of expert advice and judgement, supplemented by short-term liquidity support.... Regulatory systems should be strengthened and harmonized; the risks that investors are taking should be made more transparent.
9 John Maynard Keynes, 1931 "We are today in the middle of the greatest economic catastrophe of the modern world...the view is held in Moscow that this is the last, the culminating crisis of capitalism and that the existing order of society will not survive it." As quoted in The Economist (September 5, 1998), page 19.