The document discusses Joseph Stiglitz's view that the IMF pursues objectives beyond its original mandate of enhancing global stability, namely advancing the interests of the financial community. Stiglitz argues the IMF is dominated by market fundamentalism and fails to address instances where markets fail. He provides examples of inconsistencies in IMF policies, such as intervening to sustain exchange rates while opposing intervention elsewhere, and spreading economic crises rather than containing them. Stiglitz asserts the IMF prioritizes bailing out Western creditors over countries' social obligations, weakening incentives for responsible lending and risk-taking.

1. Globalization and Its
Discontents
Chapter No. 8
The IMF’s Other Agenda

2. Introduction of Author
Joseph E. Stiglitz
Chairman of the Council of Economic
Advisers from 1993 and chief
economist at the World Bank from 1997

3. The IMF’s Other Agenda
Author’s Thinking
The IMF is pursuing not just the objectives
set out in its original mandate, of
enhancing global stability and ensuring
that there are funds for countries facing a
threat of recession to pursue expansionary
policies. It is also pursuing the interests of
the financial community. This means the
IMF has objectives that often conflict.

4. The IMF’s Other Agenda
Author’s Thinking
Market fundamentalists dominate the IMF.
However, IMF needs to identify instances in
which markets fail and analyze how particular
policies might avert or minimize damage done
by these failures.
Examples of inconsistencies in IMF policies ---->>>

5. Inconsistencies
Intervention to sustain exchange rates (why
is this intervention desirable when intervention
is so undesirable in other markets?)

6. Inconsistencies (Continued)
IMF’s attempts to quarantine “contagion”
(economic crisis in one country spreading to
others) – but in Asian financial crisis, IMF
spread the disease rather than containing it!

7. Inconsistencies (Continued)
Overly simplistic understanding of balance
of payments deficits – need to consider what
money is actually being used for.

8. Inconsistencies (Continued)
By providing funds for governments to bail
out Western creditors when loans aren’t
repaid, IMF has caused creditors to weaken
incentives to ensure that debts will be paid.
Borrowers are encouraged to incur excess risk
– don’t buy insurance b/c they count on an
IMF bailout.

9. Inconsistencies (Continued)
IMF began to condition approval of loans to
a country on participation by the private sector
– i.e. if a country can’t raise a minimum amt of
money from private banks, it might not be able
to receive funds from the IMF.

10. Inconsistencies (Continued)
In 1999, IMF decided to expand its role to
be the “Lender of Last Resort,” a role
previously played by central banks. But
countries pay IMF back first, and if more $$ is
going to IMF, less can go to private lenders.
This results for need of risk premiums and
higher private sector interest rates.

11. Overview
IMF is pursuing interests of the financial
community (i.e. foreign creditors), which are often in
conflict objective of enhancing global stability. IMF
pursued the “sanctity of the credit contract” (bail-outs to
prevent bankruptcy) over the sanctity of the “social
contract” – government’s obligation to provide basic
social and economic protections to its people.
Stiglitz suggests that IMF should take strategies more
sympathetic to the debtors, work to get economies back
on track before building up foreign reserves, explore
other ways of providing short-term stability.

12. • Thank You