IMF/WB conflict re Indonesia (fwd)

[Robert Weissman <rob@essential.org>]

Mussa  (IMF) observed that "I think those who argue that monetary policy
should have
been eased rather than tightened in those economies are smoking something
that
is not entirely legal."
Stiglitz from the World Bank observed wryly that "I didn't inhale; I wasn't
even smoking."
---------------------------------------------------------------
October 2, 1998

IMF, World Bank Officials Differ On Response To Crisis
Dow Jones Newswires

WASHINGTON -- A split emerged Friday between the World Bank and the
International Monetary Fund (IMF) over the appropriate monetary policy
response that should be followed by countries that are swept up in the
financial maelstrom that is swirling around the globe.
On Wednesday, the IMF's chief economist Michael Mussa stood by the Fund's
view
that countries whose currencies come under severe downward pressure should
raise interest rates to prop up their currency and to slow the outflow of
capital when this occurs.
But Joseph Stiglitz, chief economist of the IMF's sister organization, the
World Bank, told journalists on Friday that he favors a policy approach
that
is diametrically opposed to that put forward by Mussa.
In remarks to a press conference on Wednesday, Mussa said that in a country
whose currency is "very enormously depreciated" by market pressures and
where
domestic banks and businesses have a high degree of foreign currency
indebtedness, "monetary conditions have to be firmed at least moderately in
order to resist overwhelming depreciation."
Mussa noted that higher interest rates in Thailand and Korea had helped to
stabilize the situation in these countries even though the monetary
tightening
had been "somewhat tardy."
He observed that interest rates have come down again in these countries,
and
in Korea's case to below the levels prevailing prior to the crisis.
In Indonesia, where monetary conditions weren't really tightened, Mussa
said,
there was "a disaster" in which the exchange rate depreciated "out of
sight."
Mussa observed that "I think those who argue that monetary policy should
have
been eased rather than tightened in those economies are smoking something
that
is not entirely legal."
Stiglitz from the World Bank observed wryly that "I didn't inhale; I wasn't
even smoking."
He said that in his view, Mussa "hasn't looked at the econometric evidence
of
this."
"Looking at this approach not from an ideological perspective but looking
at
it from the way anyone who is serious about economics would look at it,
looking at the data sets, we go through both the theory and the evidence.
on
the issue and you'll see that Mr. Mussa is wrong," Stiglitz said.