In a speech on globalization yesterday, Kenneth Rogoff, Professor of Economics at Harvard and former Director of Research at the International Monetary Fund, said he sees little way for developing countries to move forward without encountering significant economic hardship.
The speech focused on the effects of globalization on developing countries. Rogoff stressed the importance of creating strategies to reduce borrowing in developing countries in order to prevent the economically disastrous events that he had earlier described as inevitable.
Rogoff emphasized the notion that developing countries cannot transform their economies overnight. He said that many factors, including culture and education, contribute to the growth of a developing country.
"Some regions move faster than others," he said, "politically, socially and developmentally."
Rogoff utilized this argument to support his philosophy that all financing through the World Bank should be in the form of aid donations.
According to Rogoff, because development does not occur in the short run of 20 or 30 years, countries often become deeply indebted to the World Bank with no way to repay their loans. He said he views this burden as unnecessary and counterproductive.
Rogoff partially blamed the United States and other wealthy countries for not providing more aid. "The fact that the United States is not finding a way to give more aid ... is lamentable," he said.
Restructuring debts could bring about quicker economic recovery, Rogoff said, while maintaining that such a change was not a panacea.
"Believe me, they do not want to restructure," Rogoff said of the political leaders of the world. "Politicians are shortsighted; they want to borrow."
Rogoff shared anecdotes about his grandfather, Dartmouth class of 1917, and his experiences during the Great Depression to demonstrate the existence of global recessions to an American audience.
"This is something very real," he said of the economic problems of developing countries.
Rogoff also used the speech, given to a capacity crowd in Rockefeller 2, to criticize United States fiscal policy. If the United States were a developing country, the IMF would be very worried about our borrowing statistics and economy, Rogoff said.
"Some day, this is going to be a mess," he said of the system in which money is flowing from very poor countries into the wealthiest nations.
The speech went on to detail the difficulties that international organizations such as the IMF and the World Bank face in today's global economy.
Rogoff spent a portion of the speech defending the reputation of the IMF against the constant criticism it receives.
"Some charges have merits. In fact, I was making them before I went to the IMF," Rogoff said.
Overall, though, he said that the IMF is used as a "whipping boy."
"Countries don't come to the IMF when the sun is shining," Rogoff said, explaining that the IMF does not lead countries to economic decline. They come to the IMF in financial ruin, he said.
"What is causation and what is correlation?" he asked.
Rogoff said he believes that some international lenders and borrowers take advantage of the IMF. He called this the moral hazard theory.
Because it is well known that international organizations like the World Bank possess the means to mitigate international economic problems, Rogoff said, the international community tends to take more risks lending and borrowing money.
He explained that both parties are less worried about the consequences because the World Bank can bail them out.
Rogoff concluded by emphasizing the importance of adequate governance in the growth of developing countries. However, he explained that international organizations like the IMF and the World Bank could not impose governmental systems on these countries.
When asked how these developing countries could be convinced to modify their governments to encourage economic recovery, Rogoff's silence echoed the problematic nature of economic globalization.
