COMMENT & ANALYSIS: The odd couple of global finance 
By Ed Crooks
Financial Times; Jul 06, 2002

 
To their enemies, the International Monetary Fund and the World Bank 
are indistinguishable: twin faces of the hydra-headed monster of 
the "Washington consensus" dedicated to the defence of global 
capitalism and oppression of the poor.

But anyone who has read about last week's extraordinary diatribe by 
Kenneth Rogoff, the IMF director of research, against Joseph Stiglitz, 
the bank's former chief economist and 2001 Nobel prize-winner for 
economics, can only wonder: consensus? What consensus?

The dispute has lifted the curtain on a relationship that is in reality 
more like that of fractious siblings. The two institutions are too 
different to get along in harmony; too closely related to get out of 
each other's way.

The latest flare-up came on World Bank turf a week ago, when Mr Rogoff 
spoke to an audience mostly made up of bank and fund staff at a 
lunchtime debate to launch Prof Stiglitz's new book, Globalization and 
its Discontents.

In defiance of the confidence expressed by Nicholas Stern, Prof 
Stiglitz's successor as chief economist at the bank, that the debate 
would be "about issues, not personalities", Mr Rogoff launched a 
vituperative attack on Prof Stiglitz's character and record in office, 
particularly during the Asian financial crisis of 1997-98. "What really 
puzzles me is how you could be so sure that you are 100 per cent right, 
so sure that you were willing to 'blow the whistle' in the middle of 
the crisis, sniping at the paramedics as they tended the wounded," he 
said. "Do you ever think that just maybe, Joe Stiglitz might have 
screwed up?"

His attack, now available in full on the IMF's website, sounds 
intemperate, even excessive. Prof Stiglitz pronounced 
himself "dumbfounded" by the barrage of criticism, particularly 
unexpected from such a cerebral and mild-mannered man. But it reflected 
Mr Rogoff's sense, shared by many of his colleagues, that the IMF had 
been provoked beyond endurance. Eventually something had to snap.

Mr Stiglitz has been one of the IMF's harshest critics for years. He, 
too, has crossed the line dividing intellectual disagreement from 
personal conflict: he has described the IMF's staff as "third-rate". In 
his book, he writes that IMF economists "make themselves comfortable in 
five-star hotels in the capitals" in developing countries, and likens 
modern economic management to high-altitude bombing. "From one's luxury 
hotel, one can callously impose policies about which one would think 
twice if one knew the people whose lives one was destroying."

Both the fund and the bank are quick to point out that Prof Stiglitz is 
a long way from representing the World Bank's official position. Even 
while he worked there, his boss James Wolfensohn, the bank's president, 
observed: "I am always interested to see what Joe is saying on behalf 
of the bank."

But that is not to say that Prof Stiglitz is a maverick. Other bank 
officials still hold him in high regard, and he retains a formal link 
to the institution as a member of a panel of independent advisers to Mr 
Stern. He may make his points more strongly than his former colleagues, 
but there can be no doubt that he is reflecting widely shared and long-
standing tensions, which at times have had serious consequences. 
Development campaigners believe that debt relief for the poorest 
countries was held up for years by wrangling between the fund and the 
bank.

The roots of their differences go back to the origins of the fund and 
the bank in the 1940s. Conceived together at Bretton Woods, they were 
given quite distinct objectives: the bank to support economic 
development, the fund to maintain the stability of the global economy. 
These two different objectives have given the two institutions very 
different cultures: disciplined crisis managers versus reflective 
idealists.

"I always compare the IMF to the Communist Party: a vanguard, very 
ideological, very top-down. When they make decisions, things really 
happen," says Justin Forsyth, policy director of Oxfam, who has dealt 
with both institutions for many years. "The World Bank is more complex, 
more like a university. Lots of different ideas are bubbling away, and 
you can never really be sure of the connection between the decision-
making and the organisation."

As well as being less focused, the bank is also much bigger: it employs 
10,000 people, nearly four times as many as the IMF.

Charles Wyplosz, of the Centre for Economic Policy Research, who has 
worked as a visiting scholar at the IMF, says the fund is like the 
Prussian army, the bank like the Mexican army. "IMF staff tend to think 
of themselves as smart and select, and to look down on World Bank 
people," he says. "And it is true that the IMF's recruitment is very 
homogenous: the staff tend to be economics PhDs from leading 
universities. The World Bank recruits a much wider range of people."

At the Rogoff/Stiglitz debate, the IMF gang in their dark suits could 
be easily distinguished from the bank crew in their shirtsleeves and 
chinos.

What turns these cultural differences into flashpoints is when the 
activities of the fund and bank conflict. It can be infuriating, for 
example, for a World Bank manager who has spent years trying to help 
small businesses in a developing country to be told that the IMF has 
recommended a sharp rise in interest rates or taxes that will force 
those businesses to close.

To make matters worse, since the 1970s, the dividing line between the 
two institutions' functions has become blurred. The IMF has taken on 
long-term lending to the poorest countries, and begun making policy 
recommendations on structural issues, such as social security systems. 
The World Bank, meanwhile, was heavily involved in the bail-outs for 
Mexico in 1995 and South Korea in 1997 and 1998.

Both institutions, located on opposite sides of Washington's 19th 
Street, insist that relations are much better than they were in Prof 
Stiglitz's day. Mr Stern and Mr Rogoff meet for coffee every week, if 
they can, and new structures are in place to improve co-ordination in 
the bank and fund's activities in the poorest countries. But there is 
clearly some way to go. When the World Bank broadcast the video 
recording of the Rogoff/Stiglitz debate to its staff on an internal 
network, the IMF wanted to do the same. But it turned out that their 
systems were incompatible.