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Dornbusch lashes out
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January 28, 1999: 1:02 p.m. ET
Economist rails at IMF, Cardoso, predicts junk-bond status for Japan
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DAVOS, Switzerland (CNNfn) - World-famous economist Rudi Dornbusch castigated international financial leaders Thursday, demanding radical changes at the top and saying, 'it's over with amateur hour'.
In a speech to international chief executives and journalists at the World Economic Forum in Switzerland he demanded the dismissal of IMF chief Michel Camdessus, describing him as a monument to the failure of stabilization programs. "There's no crisis that he's not in the middle of," complained Dornbusch, who is professor of Economics and International Management at Massachusetts Institute of Technology.
He predicted a bleak future for Japan, and said that running a budget deficit around 10 percent of GDP for several years would mean Japan's credit rating will be reduced to junk-bond status within three or four years. "Italy will look very good relative to Japan," maintained Dornbusch
There were harsh words too, for the financiers attempting to steer Brazil out of its growing financial crisis. "Amateur hour in Brazil is over," he said, demanding an end to the IMF's "muddling through", and the creation of a currency board to oversee interest rates and currency policy.
"A currency board has worked in Hong Kong and Argentina," claimed Dornbusch. He said Argentina's current interest in a plan to replace the peso with the U.S. dollar "is a warning to (Brazil's president) Cardoso to grow up".
Dornbusch admitted that the creation of a currency board was an unusual move, but said it is necessary if Brazil is to avoid another decade of economic woes.
Brazil recently abandoned its efforts to prop up the real by allowing the currency to float. The real has lost about a third of its value, forcing officials in Sao Paulo to raise interest rates sharply to halt the exodus of dollars from Brazil.
As far as the next world currency crisis goes, Dornbusch warned that South Africa and Turkey were heading toward the abyss.
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