The IMF and global financial crises : Phoenix rising?

263 Pages·2013·1.626 MB·English

by  Joseph P Joyce

Praise for The IMF and Global Financial Crises J
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“Joseph Joyce has written a masterful book tracing the history of the IMF from inception e
to its current place in the international financial system. But The IMF and Global Financial The IMF
Crises is much more than a history. In an engaging yet clear fashion, Joyce explains the gen-
eses of financial crises, and why the functioning of the global economy requires an institu- T
tion like the IMF. This book is sure to become the definitive work on this critically important
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issue.”
and Global
– Menzie Chinn, University of Wisconsin–Madison
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“Santayana reminds us that ‘Those who cannot remember the past are condemned to repeat
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it.’ Joseph Joyce’s book provides a ready mnemonic. The International Monetary Fund is the FInancIal crIses
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focal point of this work, and Joyce shows us both the strengths and the weaknesses of this
institution as an agent of stability in the volatile world financial markets. This will be an
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important addition to your financial-crisis bookshelf.”

– Patrick Conway, University of North Carolina a
Phoenix Rising?
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“In this book, Joseph Joyce surveys the role of the International Monetary Fund in overseeing
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international finance since the 1940s. Joyce’s clear, compelling analysis goes beyond this to

provide an informative, incisive history of modern international finance more generally. The G
IMF and Global Financial Crises is an accessible, comprehensive, and fair-minded review l
of the history, structure, and functioning of the contemporary international financial order.” o Joseph P. Joyce
– Jeffry Frieden, Harvard University b
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“Joseph Joyce’s book is a tour de force. Unlike other works on the IMF this analysis weaves

together theory and practice from economics and political science with larger concerns over F
the ways in which international organizations can influence domestic policies of member I
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states. Professor Joyce has produced a volume that will be an important reference for academ-
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ics and policy makers alike.”
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– David Leblang, University of Virginia
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“Joe Joyce has written a concise yet lucid history of the IMF that focuses on its evolving role
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in a world of increasing financial fragility. This volume fills a real pedagogical gap, and any-
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one who teaches about the international monetary system, or wishes to learn about it, will be

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in the author’s debt.”
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– Maurice Obstfeld, University of California, Berkeley
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“Joe Joyce has produced a concise review of the IMF’s sixty-five-year evolution. The book is e
comprehensive, informative, and provocative.” s
– Edwin (Ted) M. Truman, Senior Fellow,
Peterson Institute for International Economics
Joseph P. Joyce is a Professor of Economics at
Wellesley College.
Cover image: © Toria / Shutterstock.com
Cover design by David Levy
THE IMF AND GLOBAL FINANCIAL CRISES
Th e International Monetary Fund's response to the global crisis of 2008–9
marked a signifi cant change from its past policies. Th e IMF provided relatively
large amounts of credit quickly with limited conditions and accepted the use of
capital controls. Th is book traces the evolution of the IMF’s actions to promote
international fi nancial stability from the Bretton Woods era through the most
recent crisis. Th e analysis includes an examination of the IMF’s crisis manage-
ment activities during the debt crisis of the 1980s, the upheavals in emerging
markets in the 1990s and early 2000s, and the ongoing European crisis. Th e
dominant infl uence of the United States and other advanced economies in the
governance of the IMF is also described, as well as the replacement of the G7
nations by the members of the more inclusive G20, which have promised to
give the IMF a role in their mutual assessment of policies while undertaking
reforms of the IMF’s governance.
Joseph P. Joyce is a professor of economics at Wellesley College and serves as the
faculty director of the Madeleine Korbel Institute for Global Aff airs. Professor
Joyce’s research deals with issues in fi nancial globalization. He has published
articles in many journals, including the J ournal of International Money and
Finance , Open Economies Review , Review of International Economics , J ournal of
Development Economics , and Economics & Politics, and he is a member of the
Editorial Board of the Review of International Organizations . He received his
Ph.D. in economics from Boston University.

Th e IMF and Global Financial Crises
Phoenix Rising?
JOSEPH P. JOYCE
Wellesley College
Department of Economics
cambridge university press
Cambridge, New York, Melbourne, Madrid, Cape Town,
Singapore, S ã o Paulo, Delhi, Mexico City
Cambridge University Press
32 Avenue of the Americas, New York , NY 10013-2473, USA
www.cambridge.org
Information on this title: www.cambridge.org/9780521874175
© Joseph P. Joyce 2013
Th is publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 2013
Printed in the United States of America
A catalog record for this publication is available from the British Library.
Library of Congress Cataloging in Publication data
Joyce, Joseph P.
Th e IMF and global fi nancial crises : Phoenix rising? / by Joseph P. Joyce.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-521-87417-5 (hardback)
1. International Monetary Fund. 2. Financial crises. 3. International fi nance.
4. Global Financial Crisis, 2008–2009. 5. International Monetary Fund –
Developing countries. I. Title.
HG3881.5.I58J69 2013
332.1′52–dc23 2012023656
ISBN 978-0-521-87417-5 Hardback
Cambridge University Press has no responsibility for the persistence or accuracy of URLs
for external or third-party Internet Web sites referred to in this publication and does not
guarantee that any content on such Web sites is, or will remain, accurate or appropriate.
Th e phoenix hope can wing her fl ight
Th ro’ the vast deserts of the skies,
And still defying fortune’s spite,
Revive, and from her ashes rise.
Miguel De Cervantes,
Don Quixote (Motteux, trans.)

Contents
List of Figures, Tables, and Boxes page x
Preface x iii
Acknowledgments x vii
List of Abbreviations x ix
1. Introduction 1
1.1 IPGs and Financial Stability 4
1.2 IGOs and the IMF 8
1.3 Principals and Agents 10
1.4 Overview 13
2. Bretton Woods 19
2.1 New Order 20
2.2 Administrative Arrangements 24
2.3 Adjustment versus Finance 26
2.4 Collapse of Bretton Woods 31
2.5 IMF and Bretton Woods: Appraisal 32
3. Transitions 35
3.1 New Responsibilities 36
3.2 Euromarkets 40
3.3 Recycling 42
3.4 New Organizations 47
3.5 IMF and the Nonsystem: Appraisal 49
4. Th e Debt Crisis 52
4.1 Crisis Emergence 53
4.2 Crisis Manager 55
4.3 Program Breakdowns 58
vii
viii Contents
4.4 Crisis Resolution 62
4.5 Basel I 67
4.6 IMF and the Debt Crisis: Appraisal 69
5. Global Finance Redux 72
5.1 Resurgence of Capital Flows 73
5.2 IMF Programs and Capital Decontrol 76
5.3 Catalysis 81
5.4 New Amendment 83
5.5 IMF and Financial Liberalization: Appraisal 86
6. Currency Crises 88
6.1 ERM 89
6.2 IMF and the ERM Crisis: Appraisal 92
6.3 Mexico: Crisis 96
6.4 Mexico: Aft ermath 100
6.5 IMF and Mexico: Appraisal 102
7. Th e Widening Gyre 105
7.1 East Asia 106
7.2 IMF and East Asia: Appraisal 115
8. Fiscal Follies 120
8.1 Russia 121
8.2 IMF and Russia: Appraisal 124
8.3 Brazil 125
8.4 Argentina 127
8.5 IMF and Argentina: Appraisal 132
9. Lessons Learned 134
9.1 Reforms 135
9.2 International Lender of Last Resort 139
9.3 FSF and Basel II 143
9.4 Reserves and Regional Arrangements 148
10. Th e Great Recession 153
10.1 Global Imbalances 154
10.2 P remonitions 161
10.3 Impasse 164
10.4 Implosion 167
10.5 IMF and the Great Recession: Appraisal 177
Contents ix
11. Th e World Turned Upside Down 181
11.1 Debt Again 182
11.2 Integration or Autonomy? 188
11.3 What Is to Be Done? 191
Appendix: IMF Data 1 97
References 201
Index 227