Mistakes Are Meant to be Repeated

Before beginning this posting, I want to preface it by saying that nothing mentioned here is meant to be read as an attack on Professor Smitka. I respect him and was glad that he was able to relay his experience to us in class today, but many of the points being made by Professor Smitka show the problems that have plagued the IMF in the past and continue to do so into the future. Perhaps by highlighting these serious issues there can oneday be progress in the IMF to help developing nations grow and join the developed world while helping to alleviate absolute poverty around the globe.

During class I mentioned the fact that LDCs are often targeted by developed countries for dumping of surplus goods. This practice is supposed to be illegal under the WTO but has never really been curbed. EU nations are notorious for using Africa as a source for surplus butter, foodstuffs, and other goods that are being produced under strong tariffs in the developed nations. The US does the same with dairy products as well as agricultural products. Perhaps the problem is that the WTO does not choose to strongly address agricultural products as they have been the source of much controversy in the past. However there is a serious issue here that must be addressed, and it affects the IMF because the IMF claims that its purpose is to give advice to LDCs and be a lender of last resort should they need a bailout. Well, when creating an economic plan for a nation, the fact that the products a nation would naturally have a competitive advantage in are being unfairly targeted by developing nations means that the IMF should adjust its strategic advice. This has not proven the case, as the IMF holds very little if any sway over the developed nations that fund it. It cannot be denied that by dumping their products upon LDCs, dcveloped nations are trying to protect their domestic businesses and give them an unfair advantage. Market forces no longer apply to them.

Looking at the many poor nations of Africa can help show how this practice hurts LDCs. No area of the world has been kept in so much poverty with so little growth as the continent of Africa. After the fall of colonialism, these immature ecnomies were never allowed to grow and were instead harvested for their natural resources while tariffs and nontariff barriers prevented these nations from progressing to a higher level of production. Many African nations would find their comparative advantage in agriculture. Large areas of fertile land, low cost labor, and the easy ability for foreign investment to make vast profits as well as progress for local people means that the agricultural industries should be enhanced and encouraged to export to the developed world. This would create lower cost agricultural goods for people everywhere and would save taxpayers from having to subsidize inefficient industries at home. If the free market was allowed to properly function, this is how the markets would naturally function and capital would naturally flow to allow the poor nations of Africa to produce at the own comparative advantage. If this were true, the IMF would be able to encourage this kind of development and as capital would flow into the nation, progress would be allowed to naturally occur. However, the IMF is obsessed with following a model which has created many disasters in LDC economies throughout the years. Mexico, Argentina, Japan, the Asian Tigers, Iceland (the most recent target of IMF practices), and more have all been hurt by these short-sighted economists. Are they in the back pockets of the developed world? That I do not know, but I do know that those who bankroll the IMF should naturally have some sort of guidance over its policies. Even though it is supposed to be a neutral organization, money always talks. History and experience shows that the IMF has not done its proper duty and although it has had its share of successes, there have also been way too many failures which have been fatally detrimental to the economies of infant nations. As Professor Smitka himself said, he only had a single loan that he gave out to these LDC nations that actually paid back the loan. This does not help anyone. Trust is lost, the bank loses its potential profit, and the nation is being hurt because it is being guided in the wrong direction by blind economists. A massive overhaul of the system must be made or further mistakes could drive LDC nations further into poverty, perhaps into permanent solitude and starvation. I have great hope that the world will do the right thing, but the hidden protectionist policies that have been enacted by the world's greatest economic powers have prevented LDC nations from growing and matching the level of development found in the developing world who was just lucky to get there first.