The Hospital That Makes You Sicker:
the International Monetary Fund (IMF)

by Joseph Stiglitz

New Internationalist magazine, March 2004


[Joseph Stiglitz won the Nobel Prize for Economics in 2001. He was Chief Economist of the World Bank between 1997 and 2000. So when he says that the IMF are 'free-market fundamentalists' working in the interests of Wall Street, the world ought to sit up and listen. The Nl interviewed him in London.]


NI: You say you have been forced to the conclusion that the IMF works m the interests of Western capital. This seems a remarkable view for a former chief economist of the World Bank.

JS: I watched carefully what the IMF had done, the mistakes that it had made in crisis countries in East Asia, Latin America, Africa and the economies in transition. The mistakes were sufficiently frequent that they clearly weren't just an accident - as an academic you look for patterns.

There were a couple of obvious explanations. One was that they were incompetent, stupid people. But that argument is just not persuasive - they pay among the highest wages, they get good people.

You could say it was bad economic models. But there is an array of economic models out there and they chose to use ones that led to wrong predictions, wrong policies and really negative consequences.

So why did they choose them? One is left with a possible answer that they had different objectives, that their objective in going into a country was not, for example, to keep employment as high as possible or to minimize poverty.

And then of course it all starts to make sense. You ask: 'Who makes the decision, and on whose behalf do they make those decisions?' You look at the decision-making structure - at the IMF the United States is the only country with a veto, other countries are represented by central bank governors and finance ministers. They were looking at the world with a particular perspective, a particular ideology that was in accord with their interests. And their interests were to make sure the creditors got paid. That took precedence over what would be good for the country.

Occasionally I almost got them to say that explicitly. For instance, senior people would say: 'We can't have bankruptcies or standstills, that would be an abrogation of the sanctity of the debt contract'. And I'd say: 'Well, what about the social contract?'

NI: You've gone as far as to talk about the 'free-market fundamentalism' of the IMF...

JS: One of the reasons why I was so sensitive to some of these controversies is that I had previously chaired President Clinton's Council of Economic Advisers. In that administration we had been trying to forge what we called a Third Way, a balance between the role of the market and the role of government.

Free-market economists on the Right in the United States were saying: 'We want to privatize social security.' We looked at the numbers and saw that the transaction costs in a public social security programme are much lower than in a private one. And the private sector doesn't provide insurance against inflation, it doesn't protect people against the volatility of the stock market. There are strong arguments for having at least a core public social-security programme. We weren't against a complementary private one but we thought we needed a mixed system.

I go to the World Bank and find our sister institution the IMF is pushing countries the world over to privatize their social-security systems. Going from a public system to a private one is very difficult and there are enormous budget constraints. The IMF ignored those and that was one of the main problems in Argentina and Bolivia.

Developing countries were being told: 'There is no debate; there is no other way.' It was intellectually dishonest and many of the things that they pushed had no research basis to them at all. For instance, capital-market liberalization was the source of the instability in East Asia. I said before the meeting in Hong Kong where they forced that through: 'Shouldn't you have evidence to show that this is good for economic growth? Okay, it's good for Wall Street but your mandate is not making profits for Wall Street; it should be to increase global stability and promote growth in developing countries. Where is the evidence? None.

NI: Weren't they at all troubled when they heard these arguments coming from the World Bank? What was their comeback?

JS: It was basically: 'This is what we always do, this is the right thing.' No sense of self-questioning, no research.

One of the things that got me quite angry about this, or maybe sad is the right word, was that these are supposed to be democratic institutions, or at least public institutions in which the dominant members are democracies. The nature of a democracy is not just that there's an election every four years but that you deliberate, you discuss, you don't simply work behind closed doors. They were very explicit about this: 'As long as you talk about these issues anywhere in public we won't have any discussions with you.'

NI: You portray a hermetically sealed body, impervious to outside influence or self-questioning. Yet this unaccountable body has a licence to impose policies that do enormous damage. When you remove food subsidies and cut health spending then the impact on the poor is disastrous. People die.

JS: And it's not only in the short run. The consequences of malnutrition are lifelong, intergenerational even. It will have long-run consequences if, as in Thailand, you cut out money for anti-AIDS programmes - they had been doing a tremendous job getting rid of AIDS and then suddenly it started going back up again. That's why, in countries like Thailand and Indonesia, the moment they have had the resources they have repaid the loan and said: 'Get out of here, we don't want an IMF programme.'

But one of the issues we need to engage with is that the IMF says repeatedly: 'We get the sick people.' My father used to joke all the time that he didn't want to go into hospital because people die in hospital. The IMF has a similar argument. It says: 'Don't blame us for all the problems because they come to us when they can't balance their budget, when they have hyperinflation, when they have a crisis. These are really sick people.'

But their hospital is one where people get sicker. We saw in East Asia, Latin America, Russia and Africa how they made things worse. Unequivocally. In East Asia, the country that did not take IMF advice, Malaysia, had the shortest and shallowest downturn and the least legacy of debt. The country that was best in managing the IMF in some way, Korea, recovered the fastest. The countries that took the medicine - Thailand and Indonesia - had the worst performance.

NI: Most people in the rich world have no idea that the IMF has such power...

JS: Most people in the North do not spend much time in the South and therefore don't get to feel and see what people in the South do. It was only when I became chief economist of the World Bank and had to spend a very large fraction of my time in developing countries that I really began to see what was going on. That was a real wake-up call for me. I'd read about it but it didn't have the emotional impact until I saw at first hand in Ethiopia how bad things were.

The IMF always defines the problem in terms of corrupt government, high inflation and so on - they shift the blame to the country. Yet in Ethiopia here was a country that had no inflation, high growth, a government committed to helping the 85 per cent of the population in the rural sector and to cutting back on military expenditure - really quite striking. And the IMF cut off their programme for no reason. The budgetary stance of the IMF was completely unreasonable.

So here I had an A-plus student, getting an F from the IMF. At that point you say something is wrong with the grading.

NI: You paint the Bank as being much more complex and multifaceted than the IMF. But the Bank still insists that countries follow IMF prescriptions before it will offer loans.

JS: There is what I call a demarche, an agreement, whereby the IMF is in charge of macroeconomic policy and this is often the source of the difficulty. So they defer to the IMF and the part of the Bank working in that area often winds up thinking much like the IMF.

NI: Aren't they a bit like a 'good cop bad cop' act? The Bank, aware of its image, makes gestures that the IMF needn't bother with. But as a unit, isn't their impact on developing countries very similar?

JS: In some countries that is true. But in the case of Ethiopia we tripled lending even while the IMF cut off funding. That was an unusual case, though.

I think the stranglehold that the IMF has on finance is wrong, and it's not only Bank lending it affects. European lending is also conditional on IMF approval - that's what gives it so much power.

But other things make the Bank different from the Fund. Half the Bank's employees live in the developing world. That gives them a feeling for the developing world that's quite different from people that fly in overnight. The Bank's governance is also different - it's not just the central banks and the finance ministers, it's also the aid ministries which always tend to be among the more Left agencies in government. And finally because the Bank is involved in environment, health and education it interacts with the whole local administration, not just the finance minister. It gives you a completely different perspective on society than someone who goes in and only looks at the national GDP data and money supply numbers.

So the cultures of the two institutions are markedly different. A lot of people do see them as reinforcing each other, but I think that doesn't give full weight to the ways in which they differ and in which the World Bank has tried to moderate, not always successfully, the extremism of the IMF.


Joseph Stiglitz's case against the IMF is detailed in Globalization and its Discontents (www. Norton/Penguin 2002). His latest book on the US economy - is The Roaring Nineties: Seeds of Destruction (www.Norton/Penguin 2003). Read a fuller version of this interview on

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