Tearing Down Walls : The International Monetary Fund 1990-1999

James Boughton

• Publisher: INTERNATIONAL MONETARY FUND
• Year: 2012
• eBook ISBN: 9781616350840

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Chapter 1

¹ Twain ([1924] 2003), p. 338. Twain was quoting Edgar Wilson (Bill) Nye, who originated the quip.

² For broad analyses of these trends, see Fischer (2003) and Rhode and Toniolo (2006).

³ For a good sample of the debate, see the papers in Ito and Krueger (1997). For a subsequent empirical study of the 1990s, see Soloaga and Winters (2001). The WTO website (http://www.wto.org) has a comprehensive list of regional trade arrangements and an explanation of the rules governing the acceptance of such arrangements.

⁴ For a thorough and passionate critique, see Bhagwati (2004).

⁵ In the vernacular, a shadow bank is a financial institution that performs some of the functions of a commercial bank but is not subject to the same regulations.

⁶ The term was originated in this context in Dornbusch, Goldfajn, and Valdés (1995) and was employed and popularized in a series of papers by Guillermo Calvo dating from 1998; see Calvo (2005), especially Chapter 9.

⁷ For an inside account of the crisis and the role of the U.S. authorities in resolving it, see Rubin and Weisberg (2003), pp. 285–87.

⁸ These estimates are based on the poverty line adopted by the World Bank in 2008, which is an income of US$1.25 a day at 2005 prices; see Chen and Ravallion (2008).

⁹ The Development Assistance Committee of the OECD estimated that from 1992–93 to 1997–98 (the period of major decline), net ODA fell from $58.3 billion to $50.3 billion. During the same period, other official flows, including from multilateral institutions, rose from $8.6 billion to $9.9 billion. See Table 2 of the statistical annex of the 2010 Development Co-operation Report; accessed at http://www.oecd.org/dac/stats/dac/dcrannex.

¹⁰ Earlier, the trend had been in the other direction. Poland withdrew from the Fund in 1950; Czechoslovakia was expelled in 1954; and Cuba withdrew in 1964. Yugoslavia was an original member. On Hungary and Poland joining in the 1980s, see Boughton (2001), Chapter 19.

¹¹ For an interim assessment of the first few years of transition by Fund staff who were working on the region, see Banerjee and others (1995). For subsequent assessments at the end of the 1990s, see EBRD (1999) and the papers in Haas, Havrylyshyn, and Sahay (2001).

¹² Monoculture is used here to mean a singular focus on monetary and financial issues by a staff consisting largely of Ph.D. economists specializing in macroeconomics. In other senses, of course, the IMF is a broadly multicultural organization.

¹³ The two ECOSOC speeches were MD/Sp/89/5 (July 13, 1989) and MD/Sp/90/13 (July 11, 1990). The 1996 speech was “Challenges Facing the IMF and Malaysia,” delivered at a meeting of financial and business leaders in Kuala Lumpur, MD/Sp/96/15 (July 15, 1996); accessed at http://www.imf.org/external/np/sec/mds/1996/mds9615.htm.

¹⁴ This history is described in more detail in Boughton (2001), Chapter 13.

¹⁵ Interim Committee communiqué of October 2, 1994.

¹⁶ Minutes of EBM/94/95 (October 25, 1994), p. 14.

¹⁷ See remarks by Karin Lissakers (U.S. Executive Director in the Fund) at a meeting of the Overseas Development Council (March 16, 1995); IMF archives, OMD-AD, Box 11518, “Mexico 1995” (Accession 1998-0106-0006).

¹⁸ G7 statement (April 25, 1995), paragraph 1; accessed at http://www.g8.utoronto.ca/finance/g7dcfin.htm.

¹⁹ The dating of the international gold standard is arbitrary because countries adhered to it and abandoned it at different times. This span begins when the United States resumed the convertibility of dollars into gold and ends when the United Kingdom terminated the convertibility of the pound sterling.

²⁰ “Barbarous relic” is from Keynes ([1923] 1971), p. 138. For a comprehensive study of the way advances in monetary theory led to the evolution from gold to managed currencies, see Cesarano (2006).

²¹ For a more detailed chronology and analysis, see Buiter, Corsetti, and Pesenti (1998).

²² An even more extreme view was that only floating rates were sustainable; see Obstfeld and Rogoff (1995). That view had adherents in the IMF in the 1980s—see Quirk and others (1987)—but less so in the 1990s. At the other extreme was the argument for a single world currency. Robert Mundell, in his 1999 speech accepting the Nobel prize in economics, suggested that “the absence of an international currency” was a major “piece of unfinished business” in the international monetary system. In a subsequent speech a few months later, he concluded that a single world currency was politically unrealistic, but he called for a system with just three currencies (the U.S. dollar, the euro, and the Japanese yen) and fixed exchange rates among them; see Mundell (1999, 2000).

²³ In Fischer’s definitive statement on this topic, he admitted that he and other advocates of the bipolar view “probably have exaggerated their point for dramatic effect” (Fischer, 2001, p. 5).

²⁴ In a widely cited 1986 paper, Charles Adams and Daniel Gros demonstrated the difficulty of conducting tight monetary policy while pursuing a real exchange rate rule and concluded that such a policy was likely to lead to escalating inflation. The IMF’s experience in designing stabilization programs for Yugoslavia in the 1980s provided evidence that the Adams and Gros argument was empirically relevant; see Boughton (2001), pp. 573–78.

²⁵ Letter from Fischer to Trevor Manuel (minister of finance in South Africa), June 18, 1996; IMF archives, DMD-AD (Accession 1999-0275-0008). In a later paper, Le Fort (2005) concluded that Chile’s experience with a real exchange rate rule was not so positive.

²⁶ Detragiache and Hamann (1999) presented evidence that a key factor enabling the success of exchange rate-based stabilization in Europe, in contrast to the general experience in Latin America and other emerging markets, was that high-inflation European countries (Greece, Ireland, Italy, and Portugal) had more moderate initial inflation than the comparator countries. Italy rejoined the ERM in November 1996.

²⁷ Interim Committee communiqué (April 28, 1997), paragraph 6.

²⁸ For an analysis of “fear of floating,” see Calvo and Reinhart (2002), Section III.

²⁹ For a comprehensive list, see Hanke (2002). In the 1990s, the list included Bermuda and the Cayman Islands, linked to the U.S. dollar; Brunei, linked to the Singapore dollar; the Falkland Islands, linked to the pound sterling; and the Faroe Islands, linked to the Danish krone. More-independent currency board arrangements included Argentina, Djibouti, Hong Kong, and Lithuania, linked to the U.S. dollar; and Bosnia and Herzegovina, Bulgaria, and Estonia, linked to the deutsche mark. On that list, the oldest arrangement was Djibouti (1949), followed by Hong Kon...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Foreword
• Preface
• Abbreviations and Acronyms
• Prologue: The IMF and the Force of History
• I. The Evolving Global Role of the IMF
• II. The IMF and the Transition from Central Planning
• III. The IMF and Emerging Markets
• IV. The IMF and Low-Income Countries
• V. Institutional Evolution
• Figures
• Footnotes