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Money Doctors: the Experience of International Financial Advising

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Money Doctors: the Experience of International Financial Advising Money Doctors Can economics help make the world a safer financial place? Are there any trends in the way that crisis advice has been dispensed over time? What can we learn from case studies? How is consensus about policies that reduce financial vulnera- bility built? These are the main questions that this book seeks to answer. Money Doctors brings together internationally respected specialists from economics, history and political science such as Harold James, Louis Pauly, Stephen Schuker, Charles Wyplosz, Eric Helleiner and Kenneth Mouré. First providing a short history of money doctors, the book then goes on to cover such themes as: • financial crisis management • the IMF and policy advice • the Russian experience • contemporary money doctors The book shows that there is still a long way to go before international financial advice develops into something that is truly helpful in the long term. This book is the first to use a broad historical coverage and Marc Flandreau has pulled together a stimulating, comprehensive and authoritative volume that will be of great interest to students and academics involved in international finance and banking. Perhaps more importantly, the lessons learned from the book will go on to help future money doctors and the recipients of their advice. Marc Flandreau is Professor of Economics, Institut d'Etudes Politiques de Paris, France. He is also co-editor of Gold Standard in Theory and History, also published by Routledge. Routledge International Studies in Money and Banking 1 Private Banking in Europe Lynn Bicker 2 Bank Deregulation and Monetary Order George Selgin 3 Money in Islam A Study in Islamic Political Economy Masudul Alam Choudhury 4 The Future of European Financial Centres Kirsten Bindemann 5 Payment Systems in Global Perspective Maxwell J. Fry, Isaak Kilato, Sandra Roger, Krzysztof Senderowicz, David Sheppard, Francisco Solis and John Trundle 6 What is Money? John Smithin 7 Finance A Characteristics Approach Edited by David Blake 8 Organisational Change and Retail Finance An Ethnographic Perspective Richard Harper, Dave Randall and Mark Rouncefield 9 The History of the Bundesbank Lessons for the European Central Bank Jakob de Haan 10 The Euro A Challenge and Opportunity for Financial Markets Published on behalf of Société Universitaire Européenne de Recherches Financières (SUERF) Edited by Michael Artis, Axel Weber and Elizabeth Hennessy 11 Central Banking in Eastern Europe Nigel Healey 12 Money, Credit and Prices Stability Paul Dalziel 13 Monetary Policy, Capital Flows and Exchange Rates Essays in Memory of Maxwell Fry Edited by William Allen and David Dickinson 14 Adapting to Financial Globalisation Published on behalf of Société Universitaire Européenne de Recherches Financières (SUERF) Edited by Morten Balling, Eduard H. Hochreiter and Elizabeth Hennessy 15 Monetary Macroeconomics A New Approach Alvaro Cencini 16 Monetary Stability in Europe Stefan Collignon 17 Technology and Finance Challenges for Financial Markets, Business Strategies and Policy Makers Published on behalf of Société Universitaire Européenne de Recherches Financières (SUERF) Edited by Morten Balling, Frank Lierman and Andrew Mullineux 18 Monetary Unions Theory, History, Public Choice Edited by Forrest H. Capie and Geoffrey E. Wood 19 HRM and Occupational Health and Safety Carol Boyd 20 Central Banking Systems Compared The ECB, the Pre-Euro Bundesbank and the Federal Reserve System Emmanuel Apel 21 A History of Monetary Unions John Chown 22 Dollarization Lessons from Europe for the Americas Edited by Louis-Philippe Rochon and Mario Seccareccia 23 Islamic Economics and Finance A Glossary, 2nd Edition Muhammad Akram Khan 24 Financial Market Risk Measurement and Analysis Cornelis A. Los 25 Financial Geography A Banker’s View Risto Laulajainen 26 Money Doctors The Experience of International Financial Advising 1850–2000 Edited by Marc Flandreau Money Doctors The experience of international financial advising 1850–2000 Edited by Marc Flandreau First published 2003 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” © 2003 Marc Flandreau for selection and editorial matter; individual chapters, the contributors All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Money doctors : the experience of international financial advising 1850–2000/[edited by] Marc Flandreau. (Routledge international studies in money and banking; 26) Includes bibliographical references and index. 1. International finance–History. 2. Monetary policy–History. 3. Financial planners–History. I. Flandreau, Marc. II. Series. HG3881.M5873 2003 332'042–dc21 2003046520 ISBN 0-203-98759-4 Master e-book ISBN ISBN 0–415–32154–9 (Print Edition) Pour Antoine, Servane et Julien It’s a mutual, joint-stock world, in all meridians. We cannibals must help out those Christians. (Herman Melville, Moby Dick) Contents List of illustrations xi Notes on contributors xii Acknowledgments xv Introduction: money and doctors 1 MARC FLANDREAU PART I The long run: the institutionalization of a practice 11 1 Crises and punishment: moral hazard and the pre-1914 international financial architecture 13 MARC FLANDREAU 2 Money doctors between the wars: the competition between central banks, private financial advisers, and multilateral agencies, 1919–39 49 STEPHEN A. SCHUKER 3 Who owns “ownership”? The IMF and policy advice 78 HAROLD JAMES PART II Case studies: physicians and politicians 103 4 Who lost Russia in 1998? 105 NADEZHDA IVANOVA AND CHARLES WYPLOSZ 5 French money doctors, central banks, and politics in the 1920s 138 KENNETH MOURÉ x Contents 6 Chile’s monetarist money doctors, 1850–1988 166 ELISABETH GLASER 7 Advising, conditionality, culture: money doctors in Bulgaria, 1900–2000 190 ROUMEN AVRAMOV PART III Experts agree: international financial institutions and macroeconomic orthodoxy 217 8 “Money talks”: competition and cooperation with the League of Nations, 1929–40 219 PATRICIA CLAVIN 9 The Southern side of “embedded liberalism”: America’s unorthodox money doctoring during the early post-1945 years 249 ERIC HELLEINER 10 New therapies from contemporary money doctors: the evolution of structural conditionality in the Bretton Woods institutions 276 LOUIS W. PAULY Index 306 Illustrations Tables 4.1 Inflation and interest rates 117 4.2 The federal budget (% of GDP) 119 4.3 Federal tax collection (% of GDP) 122 4.4 Exchange rate expectations 124 6.1 Prices for Chilean nitrate, 1925–33 171 6.2 Chile: production statistics, 1925–38 172 6.3 Chile: percentage of nitrate and iodine taxes to ordinary state income, 1913–24 173 6.4 Chilean loans, debts, and real current deficits 1927–30 173 6.5 Argentina, Brazil, Chile: losses on Latin American dollar bonds issued between 1920 and 1931 175 6.6 Official and free-market valuation of monetary units as a percentage of the 1929 gold-parity valuation, yearly average figures, 1929–36 176 Figures 1.1 Exchange depreciation and sovereign default: Portugal 21 1.2 Exchange depreciation and sovereign default: Greece 22 1.3 Cover ratios and stabilization programs 24 1.4 Fiscal performance and stabilization programs 24 1.5 Stabilization in Greece 32 1.6 Spanish bonds and Germain’s comments 38 1.7 The cost of self-insurance 40 4.1 The ruble corridor, 1995–8 117 4.2 Stock prices 120 4.3 Real exchange rate 121 4.4 Interest rates on six-month GKOs 123 4.5 Foreign exchange reserves 126 4.6 Real price of oil 127 6.1 Chile: real exchange rate, 1973–8 183 Contributors Roumen Avramov is programming director for economic research at the Centre for Liberal Strategies, Sofia, was a member of the Board of Governors of the Bulgarian National Bank, 1997–2002, and was previously with the government’s Economic Coordination Agency and the Bulgarian Academy of Sciences. He is author of The 20th Century Bulgarian Economy (Sofia: Centre for Liberal Strategies, 2001); 120 Years of the Bulgarian National Bank, an Annotated Chronology (Sofia: Bulgarian National Bank, 1999); Economic Transition in Bulgaria (Sofia: Agency for Economic Coordination and Development, 1994); editor of the five-volumes series Bulgarian National Bank – Archival Documents, 1879–1989 (Sofia: National Archives of Bulgaria and Bulgarian National Bank, 1998). Patricia Clavin is reader in Modern History at Keele University, England. Her most recent book is The Great Depression in Europe (London: Palgrave, 2000) and she is currently working on a major study of the history of the Economic and Financial Organization of the League of Nations funded by the Arts and Humanities Research Board (AHRB). Marc Flandreau is Professor of Economics at the Institut d’Etudes Politiques de Paris and an expert in international macroeconomics and economic history. He has published extensively in the Journal of Economic History, Explorations in Economic History, the Journal of International Economics, and the Journal of Money Credit and Banking. He is co-editor (with Barry Eichengreen) of The Gold Standard in Theory and History (Routledge, 1997) and the author of The Glitter of Gold: France, Bimetallism and the Emergence of the International Gold Standard 1848–1873 (Oxford University Press, 2003). Elisabeth Glaser is a historian of international relations, has taught at the University of Cologne and at Georgetown University, and works part time as a psychotherapist. Among her most recent publications are “The Making of the Economic Peace,” in M.
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