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To: Alex who wrote (33033)	5/2/1999 11:14:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116791

WASHINGTON, April 30 (Reuters) - Washington's experts misjudged problems in central and eastern Europe, assuming wrongly that their theories would work in their complicated experiment, the World Bank's chief economist said on Friday. In comments he admitted were ''somewhat provocative,'' Joseph Stiglitz said the Washington consensus of World Bank, International Monetary Fund and U.S. Treasury needed to rethink its policy prescriptions for Russia and other countries. ''An excessive reliance was placed on textbook economics,'' said Stiglitz, himself an author of textbooks for U.S. students. ''Textbook economics may be good to teach American students, but it may not be so good as a basis for economic advice.'' In a paper presented to a World Bank conference on development economics, Stiglitz added: ''It is time for doctors to rethink the prescription.'' Stiglitz's comments came days after the bank announced it would reopen its lending programme to Russia, increasing its already large exposure to the world's biggest country. The IMF also announced a $4.5 billion loan, although this, like the World Bank money, will be paid only if Russia adopts new legislation on banks, bankruptcy and tax policy. Stiglitz declined to say if the new lending was appropriate. ''I may still have tenure at Stanford (University), but I'm not going to comment on that,'' he said. Stiglitz has won a reputation for controversy since he joined the World Bank from the White House, where he was President Bill Clinton's chief economist. He said last December that IMF policy prescriptions in Asia had made that crisis worse and he described the IMF's recommendation of high interest rates as ''pain for its own sake.'' He has argued for temporary capital controls, while the Washington establishment favours free capital flows, provided economic conditions are right. ''I'm deliberately being somewhat provocative,'' he said on Friday, noting that Russia's experience of declining output coupled with rising inequality had turned conventional economics on its head. ''Russia showed that you could repeal basic laws of economics and get negative growth and more inequality. In the period from right before the transformation to the mid-1990s the number of people in poverty -- living on less than $4 a day -- increased from 2 million to 66 million.'' Western advisors flooding into Russia immediately after the Soviet Union fell apart repeatedly told the government to push ahead with privatisation, assuming that this would be the starting point for solid economies and steady growth. Massive stakes in the crown jewels of the Russian economy -- potentially profitable producers of oil and raw materials -- were handed to banks through an opaque system of ''shares for loans'' but few efforts were made to develop functioning legal systems, or to ensure new owners did not destroy the firms. ''Since the whole process was widely viewed as illegitimate, this 'robber baron' privatisation put market capitalism to even greater disrepute than perhaps the indoctrination of the Communist era,'' Stiglitz said. ''Open capital accounts were an invitation to strip assets and ship wealth abroad.'' Experts say that up to $2 billion is leaving Russia each month in capital flight, one reason for the massive problems it faces in trying to pay billions of dollars in foreign debt. Stiglitz said policy makers should now concentrate on corporate governance and legal issues, moving away from ''the simplistic answer that private property is all.'' Copyright 1999 Reuters Limited.