Wansterdam discontents the IMF

Today the NGO I work for - CASE, Centre for Social and Economic Research - hosted a seminar by Christoph B. Rosenberg, head of the International Monetary Fund’s (IMF) regional office for Central Europe and the Baltics on the "Macroeconomic adjustment in Baltic countries: hard or soft landing?". It was a very good talk, clear, informative and much less theoretical than what I was used to attend at UBC, without loosing much rigour for such a reason. The bottom line was that after a decade of extraordinary growth of foreign banks financial lending in Esthonia, Latvia and Lithuania the current credit crunch - toghether with other con-causes - has provoked an outstanding fall of the international financial flow towards those countries (i.e. money saved in other countries and invested in the Baltic countries by foreign banks) which in turn is creating recession and big problems of public finance stability (i.e. the current government deficit is soaring and none knows if they'll be able to fix it). Now, one additional fact is that some 90% of the banks operating in the Baltic countries are foreign. As there was no saving in those countries when they started to operate (early nineties), they lent there the money saved by their clients in other countries. Mainly Nordic countries. Shall the Baltic borrowers start to fail to pay back, the foreign banks are much likely to run away from those countries and provoke a financial crisis exactly as those seen in Argentina, South-East Asia and Mexico. People will massively go get their money from their bank cause they don't feel it is safe to keep it there but the banks - as it would happen to all the banks of the world in such a situation, even the most virtuous ones - will not be able to give the money to all at the same time simply because they don't have it (it is not that it is all lost, but the vast majority of the money is not kept in ATM, but invested somewhere else and they can't just sell all their assets in one day and give them back in cash to their clients.).

This is a brief summary of what's happening in those countries.

The most interesting part however came when the IMF guy mentioned as a counterexample the case of Slovenia, where the bank sector is closed to international competition, so they only have one big, “inefficient, overstaffed and monopolist” national player. And he didn't seem scandalized by the fact that he mentioned this scenario as a perfectly possible alternative to what we have seen in the Baltic Countries. And that is when I am afraid to have kind of embarrassed him reminding of how the IMF actually uses to propose ultra-liberal economic receipt to every kind of country at any point in time (especially if particularly poor) and to regard protectionism as the mother of all evil. And then I asked him about any such plan at the IMF to undertake a study on whether completely open markets are the best solution at any point on time, or there is room for some kind of mixed element of protectionism and liberalism to promote the sustainable growth of the wealth of a nation. He didn't seem to have quite got the point and just replied that "looking for the optimal share of protectionism is not the IMF's business". Well, as forms of protectionism are actually everywhere and, especially in the past, protection of some industrial sectors has worked out well for all the countries that are now developed and prepared them for a tougher competition on an international level, perhaps times are ready for the IMF to enter into the dynamic optimal openness of markets business.