Globalization and Its Discontents

Chapter 4 is divided into two parts: The first explores IMF policies that have led to the 1997 economic depression, and the second underlines the ineffectiveness of the IMF’s response to alleviate the depression.

Stiglitz first advances the idea that the IMF’s push for rapid financial and capital market liberalization was at the core of the Thai baht collapse and subsequent global economic depression in 1997. The crisis is the result of a too quick and too little regulated financial market liberalization policy, encouraged by the IMF and the US Treasury. Both pushed for full capital account liberalization in East Asia, arguing it would help the region grow even faster, despite knowing that the region did not need additional capital due to its high savings rate.

Stiglitz cites Korea as a perfect example of this: The US Treasury presented Korea’s potential capital market liberalization as an event of national significance for the US, despite the National Economic Council’s disagreement. In the end, the deal was concluded behind closed doors and Korea was forced to deregulate its financial market. On top of being highly undemocratic, this decision was imposed on Korea, which was afraid that refusal would make it look unreliable to foreign investment.