On april 13/14 Jeffrey Sommers wrote:

Regarding morning after hindsight, Stiglitz began making these critiques as early as 1996.Many, like myself, saw the whole IMF/Harvard/Univ. of Chicago program as theideological enterprise it is doomed to failure from the beginning. When Stiglitz presented his resignation in Nov. of 1999 he made it clear that he was leaving in part to make just these sorts of critiques of US global economic policy. He was being pressured to keep quiet and finally decided he could do more good outside the establishment economic community than in it.

Claiming IMF policy a success in East Asia is bizarre in light of everyone from center-right to right wing economists such as Paul Krugman and Jeffrey Sachs (and even George Soros) revealing it to be the huge failure it was. There was no need to drive these nations into depression conditions to "save" them. IMF policy had nothing to do with their eventual recovery. As Viksnins must surely know it was only A. Greenspan's sensible demand-side policy of creating demand for Asian goods in the US by keeping interest rates low during the Asian crisis. That created the demand in the US for Asian goods that saved East Asia in spite of the horrible IMF mismanagement of the crisis.

The numbers don't lie, the transition has been a disaster and its engineers should have the guts to say so. There was no consensus that this was the direction to go. Quite the opposite. Fact is, these people shut out dissenting voices and in Soviet fashion pushed their program through. The people paid the price, while the hotel conference crowd all proclaimed they were dizzy with success.

Also, with regards to Taiwan. I am not sure what their point is. I know establishment economists like to see Taiwan as one remaining example that they can pull from all their failures. Yet, Taiwan does not see it this way. First, Taiwan was not fully insulated from the crisis, although it weathered it better than most others. Its response to the crisis was entirely at odds with neoliberal policy. It barred foreign short-term investors. It intensified capital controls. The central bank virtually shut down trade in futures markets. It also closed down the offshore market. It also issued a sharp warning to foreign currency traders that their machinations would not be tolerated. In short, they came down hard on global speculators. The problem in East Asia was not economic fundamentals (with the exception of the real estate asset inflation in Thailand), it was speculation, but the IMF and US Treasury can't admit this, because to do so deflates their ideology of the market's perfection. Also, their Pavlov response to inflation has been shown by World Bank studies to worsen economic crises rather than lighten them. As many studies now demonstrate too little inflation actually seems to harm an economy. Alan Greenspan learned this when he pushed the US economy into recession for no good reason in the early 1990s, thus bringing Bill Clinton to office. To his credit, he learned the lesson that a little inflation is a good thing, thus allowing the subsequent 8 year long expansion in the US to proceed apace.

A Latvian student of mine in Riga recently made the astute observation that the IMF/World Bank crowd looks suspiciously like Soviet bureaucrats who assemble at conferences to congratulate themselves on what a wonderful job they are doing, while all is crumbling around them. For Latvia's sake, I do hope people wake up to the huge mistakes made, and stop persisting in this delusion that all is fine. I really think this is currently the greatest threat to Latvia.

As center-right MIT economist Paul Krugman has said, it is "usually argued that bad ideas flourish because they are in the interest of powerful groups. Without doubt that happens." As Noam Chomsky has more succinctly stated, "bad ideas may not serve expressed goals, but they typically turn out to be very good ideas" for powerful interests. It is time to admit that these perhaps well intentioned ideas survived and thrived because they served powerful interests. This would take remarkable courage. Unfortunately, I don't think most can muster it.

On April 12 Jeffrey Sommers wrote:

Last night I attended an Edmund Muskie lecture by a former Latvian bank official and current Professor of Finance here. I was flabbergasted by the man's candor. When asked about what public good might come from privatizing Latvenergo, the largest utility company here, he said "Slovenia has its 6 largest utilities publicly held. They have per capita incomes 6 times ours. The only reason to privatize it was is for investors to make money," and he supports that. I thought someone would have to club this guy in the middle of his talk and haul him off before he revealed anymore. He also relayed any number of other schemes finance has launched here to make money, but that neither assist any meaningful development, or even hinder it. All of this was delivered in an approving manner. He kept saying we all want a Mercedes Benz and a big house and this was how to get it. One thing these Latvian financiers need to learn from the West is the art of explaining how what is in their interest, is "really" in the public's interest.

Incredible....

Again, most in the small by invitation only audience were other people in Latvian finance. So, the audience was "safe." One exception was a visiting husband of a US Fulbright scholar. Having just arrived in Riga 11 days back, he noticed incredible poverty and wondered (naively) if anyone in the finance community had tried to organize cooperative community credit unions to finance low income housing? Our speaker was confused. His English was only fair, and I think he was trying to figure out where the Mercedes Benz was in this idea. After some explaining, he finally understood, and having understood, was none to interested.

Latvia is currently in the midst of scandal. Skele is mired so deep as to have lost all credibility. He seems to have even tested the almost endless patience of President Freiberga. The justice system has completely broken down. Latvia has developed its own class of ruling oligarchs every bit as ruthless and corrupt as those in Russia. Nobody appears to be able to stop them. This is the legacy of the IMF and US Treasury Dept. ideologues. It need not, and should not, have turned out this way.

Over and out from Latvia!

Jeff

Jeffrey Sommers
World History Center
Boston/Riga