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Wednesday, April 23, 2003

Stiglitz and Rogoff, again

No, nothing has happened. I just read Zimran Ahmed's post on a speech by Nobel Laureate Joseph Stiglitz in Chicago, on the problems with economic globalisation. Ahmed describes the speech as "shallow and filled with cheap shots." Not wanting to jump on the anti-Stiglitz bandwagon (well, I am kind of on it already, but never mind) I have been thinking of an intresting contrast between him and the IMF's "economic counsellor" (chief economist) Kenneth Rogoff.

Rogoff is much remembered for his open letter to Stiglitz last July, where he attacked Stiglitz's book Globaliztion and its Discontents. One comment in that letter is of particular interest:

In your role as chief economist at the World Bank, you decided to become what you see as a heroic whistleblower, speaking out against macroeconomic policies adopted during the 1990s Asian crisis that you believed to be misguided. You were 100% sure of yourself, 100% sure that your policies were absolutely the right ones.

My question is, what did Stiglitz do as the World Bank's chief economist besides this? Stiglitz to some extent was naive, thinking that the sheer force of his ideas and personality could change things in Washington DC. Contrast this with what Rogoff has been doing. True, Rogoff first engaged in some triumphalism, such as the open letter and an article in Foreign Policy titled "The IMF Strikes Back", none of which was going to endear him to the Fund's critics, if that was his intention.

Rogoff has though, to a large extent, learnt some humility. Take the March 17 research report on the "Effects of Financial Globalization on Developing Countries", which Rogoff co-authored. The dramatic conclusion:

The empirical evidence has not established a definitive proof that financial integration has enhanced growth for developing countries. Furthermore, it may be associated with higher consumption volatility. Therefore, there may be value for developing countries to experiment with different paces and strategies in pursuing financial integration. Empirical evidence does suggest that improving governance, in addition to sound macroeconomic frameworks and the development of domestic financial markets, should be an important element of such strategies.

This was overblown, especially by some of the IMF's critics. The IMF still favours financial liberalisation, though it now recognises the problems involved, as well as a need for flexibility both in the process and pacing of such liberlisation. All the same, Ross Gittins of the Sydney Morning Herald is right when he writes that "while the IMF's many critics are rubbing it in, they shouldn't forget that such a burst of intellectual honesty takes a lot of guts."

The Fund has also been moving in other directions to change. Anne Krueger's proposal for a Soverign Debt Restructruing Mechanism, while panned at the recent Fund-Bank spring meetings, represents a huge effort to change current debt work-out practices. The IMF's signature publication, the biannual World Economic Outlook, overseen by Rogoff, is taken more and more seriously in the financial centres that matter. (There were times that IMF pronoucements on the US economy were binned straight away; no longer.) Recently, the Fund's staff was against a G-7 led push for a rollover of Argentina's debt.

The Fund therefore, under present management, is trying to evolve. It cannot be all things to all people, but it is seemingly willing to acknowledge its mistakes, while making efforts to do thing better. These efforts may not be the right ones, no matter how well-intentioned; collective-action clauses in bond contracts, for instance, are perhaps a better, and more politically feasible, solution for emerging-market debt problems than the SDRM. For all the oppostion that the Fund gets though, no matter what it does, these efforts must be acknowledged. Other than a couple of good research reports (Assessing Aid is one), I ask, what exactly is Stiglitz's legacy at the World Bank?