Criticism and bibliography. REVIEWS

Ed. by B. Pleskovic and N. Stern. Washington, 2001. 441 p.*

(c) 2002

Since 1989. The World Bank (WB) regularly holds conferences on the most important issues of developing economies and publishes the proceedings of these conferences. A review of the previous collection was published in the journal" Vostok (Oriens) " No. 5 for 2001.The conference held in April 2000 considered, among other things, the problems of a new approach to the development process and the specifics of the crises of the 1990s.

The keynote address ("Development Thinking at the Millennium") at the conference on development was delivered by the 2001 Nobel Prize-winning economist J. E. Stiglitz, a former senior WB official and now a professor at Columbia University. In his opinion, we are entering the new millennium with the realization that "development is possible, but not inevitable" (p. 13). There is no single path of development. The author highlighted the achievements of the East Asian countries (despite the crisis that these countries have been facing since the second half of the 1990s), emphasizing the active role of their governments, which continue to pursue their policy, despite the "patent" advice on revising their development strategy.

In the 1950s, development theorists (N. Kaldor, S. Kuznets, A. Lewis) believed that economic growth was inevitably accompanied by an increase in the income gap between rich and poor and the stratification of society. Stiglitz repeatedly returns to criticize these views. Looking at the experience of East Asian countries, he notes that a high level of savings is not necessarily associated with income polarization. Referring to the works of some researchers, he argues that an even distribution of income encourages economic growth, while polarization increases their political and social instability and thereby worsens the investment climate. The author asks the question: why is the level of per capita income in many developing countries significantly lower than in developed countries? Neoclassical economists explain this by saying that the former lack capital, and international financial markets do not show sufficient readiness to fill this missing factor of production. Therefore, international financial institutions should ensure that capital flows from developed markets to developing ones.

Criticizing the views of two ideologues of the WB - X. Chenery and A. Krueger, who reduce the problem of development to the mobilization of financial resources and their allocation to investment and believe that the effective distribution of investment should be provided by the market, Stiglitz considers development as a complex process. From his point of view, development means the transformation of society, the movement from the old way of thinking, old forms of social and economic organization to new ones. For example, education is important not only because it increases "human capital", but also because it encourages receptivity to change. Foreign trade, among other things, is also important because it expands contacts and changes thinking. But reforms cannot be imposed from the outside.

Stiglitz is a proponent of the active role of the state, so he objects to economists who believe that there are no market problems, but only problems of a "predatory" state that redistributes rent in its favor and thereby reduces the efficiency of resources used. The speaker pays great attention to the institutional structure, to the formation of such institutions that stimulate competition, increase the level of governance in both the public and private sectors. According to the speaker, development cannot be reduced to liberalization, privatization and stabilization. Stiglitz concludes his report on an optimistic note, since the experience of the second half of the twentieth century shows that development is possible. However, in the twenty-first century, approaches to development must be comprehensive.

The topic of development was continued by Harvard University Professor D. Rodrika ("Development Strategies for the 21st Century"). In his opinion, the main lesson of the twentieth century is to realize that,

* The World Bank. Annual Conference on Emerging Economies 2000. Edited by B. Pleskovich and N. Stern. Washington, 2001. 441 p.

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successful development implies that the market is supported by strong state institutions that must ensure property rights, regulate the activities of market participants, maintain macroeconomic stability, provide social guarantees, and manage conflicts. Currently, developed countries are making progress on the basis of a mixed economy model. Developing nations need to determine their own path, develop their own national strategy, and not imitate American-style capitalism. The simple idea that the market and the state should complement each other was implemented everywhere - in the United States, Western Europe, and East Asia. The 19th century discovered capitalism, and the 20th century showed that in order to increase labor productivity, it is necessary to strengthen the role of the central bank, implement a stabilizing financial policy, apply antitrust legislation, etc.

The author notes that understanding of the development strategy has passed through a number of stages. In the 1950s and 1960s, under the influence of the Soviet Union, anti - market ideology spread. It is characteristic that it dominated even in Latin America, where the influence of the United States is traditionally strong. In the 1980s, as a result of the debt crisis and the previous collapse of the Bretton Woods system based on interstate regulation, views on development strategy radically changed. The so-called Washington Consensus is being developed, according to which the emphasis is shifting towards privatization, deregulation, and liberalization. These ideas were enthusiastically received in Latin America and in the post-socialist countries of Eastern Europe. Politicians in Asia and Africa behaved more moderately, but there was also a noticeable turn towards market ideas. Initially, little attention was paid to the institutional side of market reforms. The role of the state was limited to maintaining macroeconomic stability. The emphasis was on curtailing the role of the state, rather than improving its effectiveness.

A more balanced approach began to emerge only at the end of the twentieth century, as it became apparent that the principles of the Washington Consensus had failed. In support of this conclusion, the author refers to failed Russian reforms, in which price reform and privatization were implemented in the absence of relevant legal norms and political apparatus. Market reforms in Latin America have also failed to meet their expectations. Finally, the financial crisis in East Asia highlighted the dangers of financial liberalization in the absence of appropriate regulation.

One of the most acute global problems of the global development strategy is the problem of poverty. The conference was dedicated to this theme in a speech by the Director of the Center for International Development at Harvard University, J. R. R. Tolkien. A New Global Consensus on Helping the Poorest of the Poor, according to which there is a need to reach a new consensus in this area. Sachs believes that the World Bank and the IMF are directly responsible for the fact that rich countries, and especially the United States, avoid providing assistance to poor countries. This is not surprising, since the United States and European countries dominate these institutions. The position of the United States J. Sachs puts it this way: "We have already incurred great costs during the Cold War, so leave us alone and let us enjoy our prosperity and our new economy."

Politicians in developed countries see the main cause of poverty in developing countries in the fact that they do not implement effective economic policies, do not reform their economy. J. Sachs, who participated in the implementation of reforms in more than 10 countries for 15 years, notes that only market reforms can not overcome poverty, and gives a number of arguments in favor of the justification of your point of view. In particular, he points out the health status of the population in the least developed countries, the low level of education, and concludes that market-based reforms should be combined with targeted policies to meet basic needs. This policy, as we know, was at the center of the strategies of the developed third world countries in the early 1970s. Moreover, the WB played an important role in its development and popularization at that time. But then, when market sentiment prevailed, these strategies were not used.

J. Sachs accuses international financial institutions of having implemented ineffective structural adjustment policies for 20 years. The position of the least developed countries in the international division of labour has not changed. Rich countries should help the poor implement new technological and industrial policies.

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In the United States, technological progress is achieved not only through a free market, but also through a comprehensive system that includes the government and various funds in addition to the market. "It's no secret that $ 85 billion is spent annually in the "free market" US. from public funds for basic science and applied research" (p. 42).

As a result, the author asks the question: if everything is so obvious, then why is a comprehensive assistance program not being adopted? This can be partly explained by the fact that the market ideology in its extreme version denies the fact that market reforms are insufficient to achieve their goals and the need for the government to implement technological and industrial policies. But J. R. R. Tolkien Sachs believes that the US government, the IMF and the World Bank can not be attributed to the supporters of this ideology. Therefore, the following circumstances deserve attention. The poorest regions are located in sub-Saharan Africa, parts of India, China, Central Asia, and Latin America. They are usually geographically isolated in extremely unfavorable climates. Globalization will not be able to seriously affect the situation of these countries. Therefore, it is very difficult to develop an effective policy. Nevertheless, a radical anti-poverty program must be put on the agenda, although it will require huge costs.

J. Sachs criticizes the American and European protectionists, whose actions are aimed at restricting imports from Africa and Asia. It justifies the anti-globalist movement, as the US, Europe and the Bretton Woods institutions (IMF and WB) do not take adequate actions to combat poverty. Paying tribute to the professionalism of the current leaders of the IMF and WB, he attributes their failure to fight poverty to the inefficiency of the system within which they operate. The Clinton administration said it would like to expand the aid program, but believed that it would be blocked by Congress. But the same administration did not propose fundamental reforms to aid programs.

J. Sachs is confident that the funds allocated to the fight against poverty should be significantly increased. He pays special attention to the health sector, where the IMF and the World Bank should work together with WHO. He regards measures to settle the external debt of the least developed countries as half-hearted and insists on full debt cancellation. In his opinion, the focus of the World Bank's activities should be on the poorest countries, not the states that have already reached a certain level of development (Argentina, Brazil, Mexico, Chile, the Republic of Korea).

In conclusion, J. R. R. Tolkien Sachs stressed that he is in favor of radical reform of the IMF and the World Bank not because he is an opponent of these organizations, but because he is a supporter of them. The time has come for these institutions to make full use of their intellectual and other capacities to fight poverty.

As already mentioned, one of the areas presented at the conference is the problem of crises. In the report of the WB staff in. Easterlaya, R. Islama, and J. Shaken and Stirred: Explaining Growth Volatility examines the relationship between volatility (instability) in the process of economic growth and institutional factors. The most important conclusion they come to is that in the past, when analyzing the causes of volatility, the role of factors such as wages and prices was exaggerated, and the importance of the financial system was downplayed. The financial system can act as a stabilizer to help consumers and producers minimize the impact of economic shocks. However, as financial and cash flows grow, risks increase and volatility increases.

In the modern world, economic crises often occur simultaneously with financial ones. At the same time, financial crises in developing countries have become more frequent and more profound. These crises differ significantly in their origin and nature. The report provides data on volatility in selected regions. Rapidly developing countries in Southeast and East Asia, such as Hong Kong, Indonesia, Malaysia, Singapore, Taiwan, and Thailand, had the highest growth rates and lowest volatility in the developing world before the 1997-1998 crisis, although overall volatility was high in SEAC. The ratio of credit resources to GDP provided to the private sector (financial depth) in the region was even higher than in developed countries, while in general it is lower for developing countries. It seems that this indicator, despite

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despite the low volatility, it indicated the potential danger of a banking crisis due to over-crediting of the private sector.

Based on empirical analysis, the researchers concluded that the volatility in GDP growth per capita depends primarily on the openness of the economy (export and import quotas), changes in the terms of trade and financial resource flows. However, the volatility of the money supply (MOH/GDP) had a positive effect on the volatility of GDP. This is probably associated with a flexible monetary policy, which should respond quickly to the macroeconomic situation. There is also a correlation between wages, prices, inflation and the volatility of economic growth. What matters is the content of economic policy, i.e. whether the emphasis is on financial or monetary mechanisms.

The authors come to the conclusion (which, however, was tested by the practice of the second half of the 1990s) that the liberalization of capital transactions with the outside world is fraught with the risk of destabilization of the economy: capital flows are unstable and depend on cycles. The researchers did not find a stabilizing role for capital flows. Therefore, policy makers should provide for risk hedging measures if financial flows are reversed, i.e. outflows occur. It is believed that an open economy accelerates economic growth, and high economic growth reduces the risk of volatility. But the researchers also found that under certain circumstances, openness can increase the volatility of GDP growth per capita. The authors see the relevance of their report in the fact that crises are an indispensable companion of the market system.

This topic was continued in the report of the Director of the Center for Global Security Studies at Keio University (Tokyo), E. Sakakibara ("The East Asian Crisis - Two Years Later"), who noted that the East Asian financial crisis has given rise to many interpretations of its causes. Initially, discussions focused on macroeconomic and structural issues, as it is widely believed that strong macroeconomic policies and liberalized markets guarantee sustainable economic growth. However, it was then revealed that macroeconomic indicators in the countries affected by the crisis were stable. The presence of crisis phenomena was also not indicated by interest rates. It was possible to detect structural weaknesses in corporations and government institutions, but this was nothing new. These problems have existed for decades, so it was not so easy to explain the sudden crisis that broke out in 1997.

The author notes that in all countries that experienced the crisis in 1994-1997 (from Mexico to Korea), a large short-term external debt was accumulated, exceeding foreign exchange reserves. This circumstance, in the absence of a lender of last resort, caused a financial panic. Many economists also pointed out that the crisis was the result of maintaining the overvalued exchange rate of national currencies. But, according to the author, if the floating exchange rate had been introduced even before the crisis, even this would not have saved the SEEA countries from the influx of speculative capital. Ups and downs in financial flows are inevitable in the context of globalized markets. There is no mechanism to minimize these risks and prevent a collapse. Still, some measures could contribute to the sustainability of financial flows.

Emerging market countries, according to Sakakibara, should pay attention to strengthening financial systems, improving corporate governance, and greater transparency. Developed countries need to strengthen the regulation of credit institutions, but should be aware that cyclical instability in financial markets is inevitable.

The report also addresses the issue of the lender of last resort. It is rightly argued that there is currently no lender of last resort, since the IMF and the World Bank do not fulfill this role. However, the crises of the 1990s showed the need to develop such a mechanism in the interests of not only developing, but also developed countries. In this regard, policy decisions should be taken at the Group of 7 level.

The author notes the positive experience of getting out of the crisis in Malaysia, which, as is known, rejected the IMF's monetarist prescriptions and carried out anti-crisis measures in accordance with Keynesian concepts. For this, she was severely criticized by the Foundation.

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The country introduced a fixed exchange rate of the national currency against the dollar, established strict control over capital operations, and prohibited offshore transactions in the national currency. But all this did not mean a closed economy, since current operations were not restricted, and the movement of direct investment was not controlled. Malaysia has shown that the fight against capital outflows, the termination of offshore operations is not such a hopeless task, as adherents of market theories in their extreme version believe. As a means of minimizing losses from financial crises, the author puts forward projects for the development of the regional capital market, regional cooperation in the currency sphere, including the creation of the Asian Monetary Fund.

Sakakibara's opponent at the conference was a former employee of the IMF, and at the time of the conference, an employee of the US Treasury A. Berg. In his opinion, the SEEA countries faced "deep" problems on the eve of the crisis, and therefore it is wrong to explain the causes of the crisis only by large short-term debt and inadequate foreign exchange reserves, i.e. the state of liquidity. For example, Thailand and Malaysia had typical macroeconomic problems on the eve of the crisis - an inflated exchange rate and a large current account deficit. Macroeconomic problems have led to a high degree of probability of creeping into a crisis. In Indonesia and the Republic of Korea, there were no macroeconomic disruptions, but there were structural imbalances in the economy.

A. Berg notes that Sakakibara recognizes the existence of these problems, but does not believe that they played a decisive role in the development of the crisis, because, firstly, a large number of countries face similar problems, but the crisis did not affect them, and secondly, these problems have existed for many years and even decades, but for some reason, before 1997. A. Berg also disagrees with the fact that in the context of a financial crisis associated with the outflow of resources, control over capital operations is effective, as was the case in Malaysia. He believes that the well-known Chilean model, which provided for the taxation of short-term capital flows, did not produce results. However, I note that many researchers hold a different point of view. Little-known before the Asian crisis, the Chilean model was popularized during this crisis.

As a priority task, A. Berg points out the need to open up financial markets. In his opinion, even China and Malaysia are moving in this direction. However, it recognizes some of the costs of financial liberalization. In Korea, in particular, there was a clear miscalculation when short-term bank lending was liberalized, and direct investment was still tightly regulated. Liberalization is risky and should be carried out cautiously. But for the countries that have embarked on its path, according to A. Berg, increased control over capital operations is unacceptable. It cannot be seen as a response to global financial instability.

Summing up the discussion, A. Berg noted that there is a consensus on the following issues: it is necessary to achieve a balance of payments balance; to be less dependent on short-term capital flows; to strengthen the banking system; to increase transparency in the economy. But should capital controls play a bigger role? No. Should we aim to issue a regional currency, create a regional monetary fund or bank? In any case, not in the near future, A. Berg believes.

The course of discussion at any conference is determined by the composition of its participants. In this case, the position of neoliberals was less represented than that of strong state institutions. But if you look at the events objectively, you can see the following.

Financial crises have exposed the fragility of market relations in emerging markets and stimulated market transformation. At the same time, it has become clear that with weak State institutions, it will not be possible to ensure sustainable economic progress and minimize losses from crises. Therefore, along with market transformation, it is necessary to carry out structural reforms: to strengthen state authorities, restructure, improve the level of governance, and increase the transparency of corporations and credit institutions.

The crises of the second half of the 1990s in emerging markets stimulated the adjustment of their development strategies to reflect global experience and increased globalization. However, the expectation that extreme neoliberal models would prevail and that they would be adopted in the countries that experienced the crisis did not materialize.

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