It was not only Brazil that ran up the white flag last week when it halted the defence of its currency on the world foreign exchanges. The defeat of Brazil was also a defeat for the International Monetary Fund, the Group of Seven and the ill-conceived set of policy recommendations which have ensured that a problem in South-East Asia has the potential to turn into a full-scale global crisis.
The orthodox approach insisted on by the IMF in country after country has proved a disaster. If it were a private firm, the IMF's board would have been sacked long ago.
There will doubtless be those who will say that there is no reason to reassess the policies which underpin the free market – deflation, austerity, high interest rates, privatization and capital liberalization.
But last week's events are a crushing blow to that orthodox approach. Their analysis of the crisis has been wrong from the start, and they have not the first idea of what to do now, apart from more of the same.
The IMF has a bankers' mentality. It deals with central banks and thinks of itself as a central bank. It is secretive, lacks transparency and has a fixation with narrowly defined indicators. The IMF's obsession with budget deficits, curbing inflation and financial liberalization has engendered a damaging short-termism that has held back long-term development.
Reducing budget deficits through public-spending cuts while simultaneously freeing up domestic capital markets has simply had the effect of raising debt-servicing costs, thereby crowding out investment in health and education.
There have been signs during the last 18 months of a growing fissure between the IMF's thinking and that of its sister organization – the World Bank. The bank's report on the Asian crisis concludes that insistence on pushing up interest rates was a crucial blunder that worsened the situation, and that it would have been better to have let currencies fall and keep interest rates low in order to keep economies moving forward.
Words you may need:
to run up the white flagвыбросить белый флаг
haltv остановить
disastern бедствие
deflationn дефляция
austerityn строгая экономия
fissuren трещина