Friday, October 22, 2004


A friend asked me again about this whole thing about pro- and anti-IMF. OK.

Let's look back to when the IMF was created. Bretton Woods meeting in 1944 was conducted as a response to the world wreckage due to the world war. The ideas was to help the countries recover. The meeting gave birth to the IMF, World Bank, and later, ITO (the latter became WTO). The idea was noble. Then people changed. Intitutions followed. Policies did, too. Now, IMF is perceived as neo-liberalist agency. (People forget that BW meeting was Keynes' idea -- the last person you would connect to neo-liberalism). To many people, IMF is identical to exploitation of people by capital. So everything related to it is rejected. That's what happens in Indonesia now, especially after the IMF recovery program failed. (It's very unfortunate to people like Sri Mulyani who happened to be the country's representative in the IMF. Her job was, among all, to negotiate with the IMF for Indonesia's interest. She suggested to end the IMF program in Indonesia. But people don't know and don't want to know that. To them, Mulyani is IMF. Cannot be more wrong. It's like you're having a war with a country and your government send you to negotiate. Before you know it, people think you're a traitor).

The friend asked me again. What's all this doing with monetary and fiscal policies? Alright.

Why do some economists tend to promote free market and others seem more prudent and consequently rely more on the State? I always believe, both have good rationale. Both are reasonable. People believes in market because they are afraid that relying on the government means putting money on it and asking it to manage the money for social welfare and development. Meaning, it gives room for corruption. To avoid this, you should minimize the role of the government. How? Don't trust it by putting your money in its hands. On the other hand, some people believe in State intervention because they are hopeless with their own people (read: market). They think market alone cannot solve the chronic problem of poverty and unemployment. Something needs to be done and somebody needs to do something. And invisible hands are just utopia. Therefore they want to use the government to help allocate the resources more efficiently (I like to say: we need the government to correct market failures, no more -- but nobody hears). In practice, the two camps might emerge. But ideological stand usually comes in the way. And lay people see it as a war between market and the State. Or, when it comes to policies, a war between monetary policy (in particular, inflation targeting) and fiscal policy (in particular tax collection). Unfortunately, the war -- for lack of better term -- has been misunderstood by press, too. News and even analysis seem to believe that this is a binary problem: either you use monetary policy or fiscal policy. You can't use both. This is a total mistake.

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