The International Monetary Fund is lashing out at one of its most implacable critics, former World Bank Chief Economist Joe Stiglitz.
In a new book, Mr. Stiglitz castigates the fund and former Clinton administration officials for their handling of the world financial crisis in the late 1990s, and calls for greater government activism to help alleviate similar problems.
But this week, Ken Rogoff, the fund’s chief economist, struck back at Mr. Stiglitz in unusually tough terms.
“Your ideas are at best controversial, at worst snake oil,” Mr. Rogoff wrote in an open letter posted on the fund’s Web site on Tuesday.
Mr. Rogoff’s letter followed up on the public discussion surrounding “Globalization and Its Discontents,” a book by Mr. Stiglitz documenting his experiences at the World Bank during the financial crisis that began in Thailand in 1997 and spread to Asia and Russia by the following year.
In the book, Mr. Stiglitz criticizes the fund staff, and Clinton administration officials such as former Treasury Secretary Larry Summers for being “market fundamentalists” who blindly followed the whims of currency speculators.
Mr. Stiglitz, a Nobel laureate in 2001 and now a professor at Columbia University, became a hero to critics of the IMF in 2000, when he published a lenthy critique in the New Republic of the fund’s efforts to stem the Asian financial crisis. From 1997 to the end of 1999, Mr. Stiglitz was the chief economist at the World Bank.
The book, published earlier this year, argues that pressure from the Clinton administration on Asian economies to open up their capital markets to outside investors resulted in speculating that fueled an unsustainable boom. The book also attacks the IMF for insisting that countries impose tough budget cuts to avoid deficits even as their economies went into free fall.
More broadly, the book takes issue with the market-based prescriptions embodied by the IMF and the Geneva-based World Trade Organization.
After making little public comment on Mr. Stiglitz’s arguments, the fund this week laid into him. The IMF’s director of external relations, Thomas Dawson, also attacked Mr. Stiglitz in a news briefing Tuesday.
Mr. Rogoff’s letter is in response to what he viewed as unduly personal criticism of fund officials, and to policy approaches advanced by Mr. Stiglitz in his book.
In one instance, Mr. Rogoff attacks Mr. Stiglitz for implying that former IMF Deputy Managing Director Stanley Fischer was rewarded for his work with a plum position at Citigroup.
On the policy side, Mr. Rogoff contends that Mr. Stiglitz’s arguments against forcing crisis countries to balance their budgets as the IMF did with numerous countries in 1997 and 1998 ignores 25 years of economic research. Running deficits invariably leads to economic ruin, Mr. Rogoff said.
“We at the IMF no, make that we on the planet Earth have considerable experience suggesting otherwise,” he wrote. “The laws of economics may be different in your part of the gamma quadrant, but around here we find that when an almost bankrupt government fails to restrain deficits things generally get worse instead of better.”