by Robin Broad *
Earlier this month, as international economic policy-makers gathered at the World Bank and International Monetary Fund annual meeting, the U.S. government squandered a rare opportunity to quell the gathering global economic storm. Instead, it placed the longer-term interests of the world at risk while catering to the short-term gains of Wall Street.
For me, it was a case of deja vu, pulling me back to the mid-1980s and the last time parts of the global economy teetered on the brink of collapse. Then, millions suffered across the world as Wall Street banks bled poorer nations to repay crushing debts. When the outcry from the Third World became too much to ignore, Treasury Secretary James Baker used the occasion of the 1985 Bank and Fund annual meeting to announce with great fanfare that the U.S. had a plan to solve the debt crisis.
As an international economist in the Treasury Department who had worked on that response, I knew that this "Baker Plan" was little more than a public relations escapade to forestall any comprehensive action to reduce the debts. And, as the burdens and the pain of the debt crisis rose, I blew the whistle in a New York Times op- ed (September 28, 1987), to the chagrin of my former colleagues.
It is time to blow the whistle again. Last week the Clinton administration pulled the same trick. This time, with the typhoon winds of the financial crisis having knocked an estimated 20 million people off global job rolls, President Clinton announced what the press widely reported as a new global plan to enable the IMF to proactively address the contagion.
Those following the speech closely, however, knew that there was no real plan to attack the roots of the crisis.
The so-called "plan" revolves around the possibility that individual countries might -- might -- get access to some -- some -- IMF money up-front before a crisis hits. But no money amounts were given. Yet, the appearance of U.S. action again forestalled more effective action-plans by others.
Beyond mere bureaucratic inertia, the cause of the White House inaction then and now is the same: a dangerously narrow view of the national interest. Indeed, protecting Wall Street interests in the short-term is being mistaken for promoting broader public interests, at home and abroad.
Today, the cast of characters and the specifics of the crisis have changed from Baker's and my days at Treasury -- although ironically today's crisis is exacerbated by the very failure of the past U.S. responses to reduce significantly the debt burden of countries like Brazil. The current crisis results from the fact that our global economy has been converted into a virtual casino, replete with volatile short-term capital flows, exploding real estate bubbles, and rootless currency speculators and hedge funds operating just barely on this side of the law.
The casino has been constructed on the zealous, but unfounded, belief held by those in charge that textbook free-market economics could be applied to the real world. Their irresponsible mantra has been: free trade, free investment, deregulate and privatize.
The U.S. Treasury has religiously promoted the free market formula in good part because it has been a boom to the thousands of Wall Street funds that made a killing off "emerging markets" for much of this decade. That such
policies made countries extremely vulnerable to external shocks was simply not on Treasury's radar screen.
Nor was there acknowledgment that more IMF money and more IMF advice have only bred more problems -- economically, socially, and environmentally. Even before Russia, Indonesia and other nations' economies collapsed, the
IMF policies of "export more, spend less" were exacerbating inequalities, while pressing countries to pillage precious timber, minerals and other natural resources to earn foreign exchange.
Last week's U.S. pronouncements have done nothing to improve the prospects for the world economy or to reduce the chances of widespread starvation in Indonesia or Russians freezing to death this winter.
Fortunately, there are initial rumblings among European and Japanese allies, some tired of decades of the United States running roughshod over their proposals. And there are signs that World Bank president James Wolfensohn and his senior economist Joseph Stiglitz may be finding their voices of dissent. A debate over the need for some regulation of global
financial markets has begun -- but it is still far too quiet and far too circumspect given the gravity of where we are.
Much more is needed. A real plan would tame globalization by allowing for national and global controls on capital. It would be built on an acknowledgment that the Fund's (and Bank's) development model has failed, and that trade and investment are not ends in themselves, but tools for dignified work and healthy environments.
Rather than enhance the Fund's reach, a real plan would return the Fund to its narrower, original mandate of lender of the last resort. And key inputs to the plan would come not from Wall Street, but from citizen movements and other expert critics across the globe, many of whom accurately predicted the crisis.
The costs are too high this time around to allow the U.S. government to disguise one of its non-plan plans with the rhetoric of a comprehensive response.
* Robin Broad is a professor of international development at the School of International Service, American University. She is a former international economist with the U.S. Treasury Department.