Global financial experts are increasingly questioning the effectiveness of the current system when it comes to dealing with debt crises. A central figure in this debate is Martin Guzman, a prominent economist and former finance minister of Argentina. He, along with other influential voices, argues that the ambitious framework that emerged after World War II no longer fits today's complex economic realities.
The United States dominated the emergence of the international economy
The system, with the International Monetary Fund (IMF) and the World Bank as its cornerstones, took shape at a time when the United States was the dominant superpower and the climate issue had not reached the agenda. Guzman, who personally experienced Argentina's economic collapse and debt crisis, argues that the current system contributes to a more unequal and unstable global economy.
Criticism of the IMF and the World Bank has grown and extends beyond traditional left-right controversies. Many question whether the eighty-year-old framework can really meet today's challenges, especially given new geopolitical conflicts and the acute climate crisis.
Inequality does not have the same productive value
The current system, known as the "Washington Consensus," has lost confidence. There is an increased awareness of how inequality and gender discrimination inhibit growth. In addition, the world is facing new challenges, including the ongoing covid-19 pandemic, rising food prices related to the war in Ukraine and higher interest rates, putting low- and middle-income countries in debt problems and low growth.
Even in light of these changes, the IMF and the World Bank have faced criticism that adaptation to new realities has been inadequate. Changes in their approach have indeed occurred, including a shift from austerity to sustainable debt and an increase in funding for climate-related projects. But critics, including Guzman, argue that these steps are insufficient to effectively meet today's challenges.
More grants and better loans
In this context, a series of questions emerge about how best to manage debt crises and promote economic sustainability. Martin Guzman and like-minded people advocate a reconsideration of the existing system and a restructuring of its basic principles. They call for more subsidies and low interest rates with long repayment periods for indebted countries, while advocating other necessary reforms to better align policies with today's global economic challenges.
MMT may be the solution
An interesting dimension that has been proposed by some economic schools of thought, including Modern Monetary Theory (MMT), is the idea of helping countries create such an economic structure which enables them to produce their own money themselves. This strategy seeks to reduce dependence on external debt instruments and promote sustainable economic development.
In this perspective, it becomes clear that a long-term strategy should include an in-depth consideration of how to support countries in need financial assistance to create such productive autonomy. It's about giving them the tools and resources to build an economy that can generate its own resources and currencies, which in turn creates a foundation for long-term sustainability.
Tradition is no longer enough
In summary, the global economy is facing a critical period where traditional solutions no longer seem sufficient. A reexamination of the current system and an exploration of new strategies, including those promoted by MMT, may be necessary to create a more just and sustainable global economy.
This approach to economic policy has the potential to reduce dependence on external loans and create a platform for sustainable development. By giving countries the tools to produce money themselves, MMT can offer an alternative path for indebted nations to avoid the negative consequences of traditional austerity policies while promoting long-term economic stability.
After all, there is also a decent knowledge of how poor countries can become rich(er), by promoting such industries that have a future for them, in such a way that capitalists are forced to behave responsibly in the long term. These are methods that have been applied by the USA approx. 1860-1940, by Western Europe approx. 1945-1975, by Japan, Taiwan and South Korea until approx. 2000, and by China, and increasingly by Southeast Asia, today.
Very briefly, it is a matter of politics taking precedence over short-term economic profitability without ignoring it for the sake of it. As well as that not all types of production are equally beneficial. And, of course, that countries must be given the right to apply these principles without being beaten by the Washington institutions and the great powers that stand behind them.
An in-depth study of how Japan behaved can be found in Chalmers Johnson: MITI and the Japanese miracle, a study of the equivalent in China in Yi Wen: The making of an economic superpower, and an overview of them all in Alice Amsden: The rise of the rest. She also addresses what most Latin American governments did wrong in their development attempts.
We must not forget that prosperity is not about coins but about production capacity. If a country cannot produce, it also cannot pay its debts, no matter how small these are.
Of course, the production capacity is most important.
... and it requires care, it is not enough to leave it to the market, i.e. to itself.
After all, I believe in a strongly state-regulated and largely but not entirely publicly owned mixed economy.
I guess I do too, more or less. Although I believe more in producer cooperation than in the state stepping in and advising on the company's routines when things are *going well*. See e.g. https://econpapers.repec.org/paper/sipdpaper/12-003.htm and https://employeeownership.co.uk/wp-content/uploads/The_Ownership_Dividend_The_economic_case_for_employee_ownership.pdf. The person who has the greatest interest in a company doing well is the employees. The so-called owners can always evade responsibility, loot the business and run away, and the state is sluggish.
State always means bureaucracy. And bureaucracy is always sluggish. It always says no, where entrepreneurship means saying yes to news. The only times bureaucracies are keen on news are when the top bureaucrats can get benefits from it, like New Public Management.