The Chastening: Inside The Crisis That Rocked The Global Financial System And Humbled The Imf

Lauded by reviewers and scholars alike, Paul Blustein's The Chastening examines the role of the International Monetary Fund in the series of economic crises that rocked the globe in the last decade. Based on hundreds of interviews with officials at the IMF, the World Bank, the U.S. Treasury, the Federal Reserve, the White House, and many foreign governments, The Chastening offers a behind-the-scenes look at the Fund during an extraordinarily turbulent period in modern economic history and at a time when the IMF has become the object of intense political controversy.

While the IMF and its overseers at the Treasury and the Fed have sought to cultivate an image of economic masterminds coolly dispensing effective economic remedies, the reality is that as markets were sinking and defaults looming, the guardians of global financial stability were often floundering, improvising, and feuding among themselves. The Chastening casts serious doubt on the IMF's ability to combat of investor panics at a time when massive flows of money traverse borders and oceans.

A readable, compelling account of the deeply flawed workings of the international political system, The Chastening is vital reading for students and scholars of international diplomacy, government, and economic and public policy.

Amazon.com Review
An author who tries to write an engaging book about the International Monetary Fund faces a daunting task. Who besides devoted readers of The Financial Times would want to read it? With The Chastening, however, Paul Blustein offers a remarkably accessible account of this off-putting institution and its importance to the world economy. "The IMF cultivates its mystique, seeking to appear all-knowing, scientific, and detached. To outsiders, it often comes across as a high priesthood with pretensions of divine powers and insight," he writes. Blustein tears down this façade as he recounts some of the epic struggles of recent years: "As markets were sinking and defaults looming, the guardians of global financial stability were often scrambling, floundering, improvising, and striking messy compromises." Through dozens of interviews with IMF insiders, Blustein reveals how the institution really works--and how it often doesn't. There are fast-paced stories of success and failure on these pages, as Blustein describes efforts to bail out faltering economies in Korea, Russia, and elsewhere. Best of all, readers don't need economics degrees to keep pace: anybody who simply wants a primer on global financial systems will be well served by Blustein. --John Miller

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A Primer on Why Third World Debt Is Such a Mess, 2007-01-01
There are many good reasons to bash the IMF but few reasons to do so if you don't know what you're talking about -- this books lets you do both.

I've spent years in social circles that carry on a tragic lament of third world debt to first world countries, a lament I agree with but often find is expressed through oft-repeated anti-globalization mantras with no perception of how hideously complex the situation is.

This book gives you the tools to make cogent criticisms of the IMF while simultaneously learning about the herculean chore the IMF has before it. Blustein describes the mechanics of how financial crises arose in the fateful year of 1997 in Thailand, Indonesia, Malaysia, and Korea, and later in Russia and Brazil. A combination of cookie-cutter shock therapy schemes, out-of-touch IMF officials, incompetent and often corrupt finance ministry officials and Wall Street Bankers converge to make it nearly impossible for countries to escape the wrath of an increasingly volatile group of investors the author appropriately dubs the "Electronic Herd."

The pattern is now a familiar one -- irresponsible fiscal and monetary policy leaves a country exposed to predatory lenders and currency speculators. Investors and debt holders see the country's dwindling hard currency reserves as sign of imminent collapse and begin to sell off every asset they have there, creating a vicious circle of panic. The IMF is called in to make sure the country doesn't go bankrupt by providing loans of hard currency -- but who's being bailed out, the country itself of the lenders that put their money there?

Blustein explains how this dynamic was repeated in each of the countries of the 1997 and 1998 crises, with the IMF response working in everyone's favor in only two cases among a string of dismal failures. He extensively explores the issue of "moral hazard," or the idea that big loan packages to economies in crisis just reinforces irresponsible behavior on the part of both the lenders and the borrowers.

Can get a little tedious at times, and the sequence of events is sometimes hard to follow because so much is being explained at once -- but overall a well written work by a reporter who covered the subject for years.



1 of 1 people found the following review helpful:

A Case Study in the Failure of Political Rationalism, 2006-09-26
The Chastening is a ripping, white-knuckle read. This IS the best single book about the IMF, but it is also a lesson in political theory. Like Milton Friedman's "Monetary History of the United States," David Halberstam's "The Best and the Brightest," and Robert Conquest's "Harvest of Sorrow," this book is a case study in how superempowered and unaccountable bureaucrats tend make natural disasters incalculably worse. It is an object lesson in how policymaking ambitions are frustrated by human fallibility, especially when the policymaker in question fails to account for that fallibility. At every step, the Fund's planners made horrible missteps with smug confidence, thereby prolonging the suffering of untold millions of people. At every step, they were shocked when reality failed to coorespond to theory and their best intentions backfired. In a subtle way, the doctrinaire rationalist approach taken by the Fund during the Asian crisis presages the failure of the remaking of Iraq. The inherent weakness of theory-laden, top-down political and economic planning is a lesson we must apparently learn over and over again. (For those who appreciate this philosophical dimension to the book, I highly recommend James C. Scott's Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (The Institution for Social and Policy St).")

The IMF is the most powerful single human force on the planet and yet it remains totally almost unknown to public at large. Blustein is to be commended for making the Fund transparent and accessible to all educated people.


1 of 1 people found the following review helpful:

Entertaining & Imformative, 2006-08-16
Clearly the best book ever written on the IMF & its inner-workings. Great detail on the theater and players within the IMF and those that make policy. The book is a must read for anyone interested in the world economy.

Regarding the crisis that hit the world financial markets the author does an outstanding job in educating the reader on all of the key elements from Nation/States to Hedge Funds.

By taking individual chapters to break down the elements of the distressed finances of Korea, Indonesia, Russia, Brazil, Thailand & wall street the author takes us on a roller coaster ride of international politics, high finance, intrigue & history.




1 of 1 people found the following review helpful:

1997, 2006-01-04
1997, S Korea banking system was on the verge of collaspe, as result of violatile banking practices that had destabled the financial system threating the 11th largest economy of the world and created the possibility of financially crippling long term companies like Hyundia, Samsung, and Daewoo. At the time the IMF began analyzing S Korea's financial condition, S Korea bank reserves stood at $24 billion. IMF's, Neiss had no idea how close the S Korean banks were to default and when Neiss arrived in S. Korea the reserves had already fallen to $9 billion and dropping $1 billion a day. Foreign banks were demanding payment on loans come due and the practice of routinely extending payments month after month was canceled causing a massive amount of money due. The short term debt to foreigner was $20 billion. Foreigners on the currency exchange were dumping the won for the dollar and investors were executing a massive selloff of Korean stocks and bonds. When Neiss arrive S Korea was within a week of default. If S Korea defaulted, the default could cause a long and crippling cutoff of loans and neighboring Asian countries might also fall into default and investment confidence could be shattered globally and the world fall into a global recession. The S Korea economic collaspe affected the US economy; in 1998, the bond market ceased to function as a provider of capital to the world; the fed was forced into sharp cuts in the interest rate, but the fed could not tame the savage beast of the global market. The global market beast was enormous. Foreign investment in the selling and buying of stocks and bonds and other securities had reached $17.3 trillion by 1997.

Neiss envisioned three responses to the crisis: 1. acquire a short term loan from Japan 2) gain permission to pay foreign loans in bonds rather than cash 3) stem the panic by showing the market that S Korea banks had plenty of cash. The IMF bailout infused $55 billion and $21 billion from the IMF. S Korea promised to cut budget amounts, raise interest rates, shutdown ailing financial institutions and close the doors, eliminate government direct bank loans, and allow greater freedom for foreign investors to buy stocks and bonds. The IMF bailout followed by a crash in the currency and economy of S. Korea. Financial credibility damage had occurred. IMF bailouts pattern of crashes after loan approval occurred with Thailand ($17 billion loan), Indonesia ($33 billion loan), Russia (1998 - $22 billion loan), and Brazil ($44 billion bailout loan). IMF bailout meant higher interest rates cooling fast growing economies. When a country fails to meet the target goals of the IMF, the IMF blames the government of the country for failing to meet the conditions of the loan. This tactic imposes censurorship and political influence entangling the IMF with the internal policies of the countries political machinery. 1999-2000, the IMF pronounced the Asia financial crisis over.

In fast growing Asian countries, hot money had poured inot these economies. Hot money could be liquidated with a push of a computer button by commerical banks and brokers. Hot money destabilized the S Korean financial systems and increased the violatility in the system.

Criticism of the IMF are it lacks expertise in banking issues, it closes banks and does not consider whether other banks can cover; it can not create money like the fed. In 2001, IMF war chest totaling $137 billion. IMF limitations to financial assets makes it vulnerable to rescuing failsafe countries that could trigger global financial collaspe. Once an IMF bailout is installed, the role of the IMF is too become the financial planner of the country forcing the country to reduce spending and increase income revenue.


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Economists On A Mission, 2005-12-23
In Globalization and Its Discontents, Joseph Stiglitz claims that the Asian crisis could not have been achieved by market speculators and corrupt politicians alone: it required the involvement of economists, and more specifically of that breed of economists who populate the corridors of the International Monetary Fund, an institution charged with maintaining financial stability and extending credit to countries facing crises.

Although not a professional economist, Paul Blustein provides a more balanced account. Instead of invoking arcane theories and denouncing other people's incompetence to make his point, he sticks to the facts and reconstructs the story of the Asian crisis as people experienced it on the frontline. His most fascinating pages are when he follows IMF economists on rescue missions, from Bangkok and Jakarta to Seoul and back again. You can almost smell the sweat emanating from those figures uniformly clad in white shirts and dark suits, envision the nights spent working on spreadsheets in air-conditioned hotel rooms, feel the tension that reigns once the team has unearthed some unsavory data, witness the embarrassment of the authorities who are asked to spill open their books and confess their best-kept financial secrets, imagine the relief when things fall into place and the program proposal is ready to go to the executive board for approval.

One should not pity IMF economists. They live in poshy Washington, fly business class, stay in five stars hotels and, although they envy the paychecks of their Wall Street colleagues, manage to lead an international bureaucrat's life with a banker's salary. But one also has to acknowledge their high professional standards, their devotion to their tasks and their sense of discipline that contradicts the adage that economists can never agree with one another (remember Winston Churchill, who remarked that "if you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.")

Here is how IMF staffers are perceived by their colleagues from the World Bank, a sister institution located right across the street in downtown Washington:

"Economists from the World Bank, who sometimes work in joint missions with the IMF, express awe at the almost military manners in which Fund staffers defer to their superiors. This protocol is in stark contrast to the code of conduct at the World Bank, an institution devoted to long-term development loans, whose economists or irrigation specialists or environmental experts might embark on a lively disagreement right in front of, say, a borrowing country's deputy finance minister. When an IMF mission enters a room to conduct a negotiation, it is often easy to tell who ranks where; one World Banker likens it to "a mother duck leading her baby ducks." The mission chief typically sits in the middle of the table and does most of the talking, allowing immediate subordinates to chime in on issues requiring their specialized expertise; lower-level staffers are likely to remain silent."

Four year after its publication, the book still makes an interesting read. It could have been adorned with a more telling title (the "chastening" refers to the jacket of the hardcover edition which shows the IMF pilloried with a dunce's cap, as well as to the sense of awe when faced with the recurrence of financial crises that should chasten us all of any sense of complacency). It would also have benefited from the inclusion of a few pictures, and especially that famous snapshot that shows IMF Managing Director Michel Camdessus standing, arms crossed, looking down at President Suharto as he signed the revised multi-billion bailout package that was to provide a short respite to the country as it spiraled into chaos. A tell-tale picture, indeed.

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