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IMF and the Asian Crisis -
articles and commentaries

[This page was last revised on January 12, 2000.]

Jan 12, 2000. IMF "Country Experiences with the Use and Liberalization of Capital Controls"

Jan 12, 2000.  EDUARDO LACHICA. "Capital Controls Prove Mixed Bag In Asia as IMF Offers Assessment," Wall Street Journal.

"Malaysia's foreign-exchange measures, for instance, helped put an end to speculation in the ringgit and buy time for urgent banking-sector reforms but at the cost of a temporary loss of investor confidence, the IMF says in a review of the developing world's experience in coping with volatile capital flows."

April 28, 1999.  MARTIN CRUTSINGER. "IMF has no answer to currency crises," Associted Press, reprinted in Seattle Post-Intelligencer.

"The International Monetary Fund failed yesterday to find agreement on how to prevent or at least better manage future Asian-style currency crises."

Oct 7, 1998. "The IMF's Response to the Asian Crisis."

Oct 3, 1998.  Stanley Fischer. "REFORMING WORLD FINANCE: Lessons from a Crisis," Economist.

The IMF has been attacked for its handling of the world's economic and financial troubles. Here its deputy managing director, Stanley Fischer, responds.

Oct 1, 1998. Duncan Hughes. "IMF does U-turn on HK growth forecast," South China Morning Post.

"An IMF forecast said the economy was projected to contract 5 per cent this year, compared with estimates of 3 per cent growth, and will show no growth next year.

"That compares with the Government's revised estimate of a 4 per cent contraction in real terms this year."

April, 1998. World Economic Outlook, International Monetary Fund, May 1998.

Apr 13, 1998. Michael Mussa, Counsellor and Director, Research Department, International Monetary Fund, press conference on the publication of the World Economic Outlook, 1998.

"The growth forecast for the ASEAN-4 and Korea has been knocked down by another 4 percent on average for those five countries, and the growth forecasts for Japan as of the published version of the WEO has been knocked to a flat zero. Given recent data for Japan, it now looks as if zero may be a little bit difficult to materialize, but the fiscal stimulus package announced by the Prime Minister, I think, does offer some reasonable hope that in the second half of the year, at least, we will see some resumption of positive growth, though the first half continues to look weak."

Feb 17, 1998. "Bailout is failing, Indonesia tells U.S.," Seattle Times.

"Despite a $43 billion international bailout, Indonesia's crisis has failed to abate. The nation's currency, the rupiah, has remained severely depressed. The rupiah fell another 14 percent yesterday against the U.S. dollar, closing at 9,800 rupiah per dollar. At that level, few Indonesian companies can afford to import the raw materials they need to continue operating, and most are technically bankrupt because they can't afford to repay the dollars they borrowed previously.

"The Indonesian president, having evidently concluded that his country is gaining little from the conventional market-oriented reforms prescribed by the IMF, is pushing ahead with a proposal to establish a "currency board" that would rigidly fix the exchange rate for the rupiah at about 5,000 per dollar."

Feb 16, 1998. Jim Rohwer, with Tony Paul and Neel Chowdhury reporting. "Asia's Meltdown: The Risks Are Rising," Fortune.

"Isn't the whole purpose of an IMF rescue to stabilize a currency and ease short-term liquidity pressures? It is, but the IMF has grown used to working with a crisis-solving template that fits Asia's situation only haphazardly. "The IMF's medicine," says Simon Ogus, the chief economist for SBC Warburg Dillon Read in Hong Kong, "is normally aimed at countries with an inflation and a budget problem, whereas Asia's problems are ones of debt deflation, excessive private-sector leverage, and weak financial systems."

An insistence on budget surpluses, for instance, seems inappropriate for countries where inflation--whatever the long-term threat--has heretofore been largely a nonissue and whose governments have for years been running nearly balanced budgets. In fact, at a time of collapsing private-sector demand, it seems to make more sense for most Asian governments to start running deficits rather than surpluses.

To be fair, the IMF already seems to be backing away from that one in both Thailand and Indonesia. And its longer-run aims are on the mark. As this magazine has argued before (FORTUNE, Nov. 24), the root cause of Asia's turmoil is the overwhelming dominance of the American economy in the 1990s. This de facto "dollarization" of the world economy means that Asian companies must ultimately meet the standards of corporate and financial performance set in the U.S., the world's most advanced economy. Otherwise, Asian businesses will never be able to offer high enough returns to investors to attract capital in an increasingly globalized market. Seen in this light, the IMF's recent attacks on Asia's structural rigidities such as monopolies and the absence of workable bankruptcy laws make sense. "

Jan 22, 1998. Stanley Fischer, "The Asian Crisis: A View from the IMF," a speech given at the Midwinter Conference of the Bankers' Association for Foreign Trade.

"But the situations in these countries also differ in important ways. One notable difference is that Thailand was running an exceptionally large (8 percent of GDP) current account deficit, while Korea's was on a downward path, and Indonesia's was already at a more manageable level (3 1/4 percent of GDP). These countries also called in the IMF at different stages of their crises. Thailand called on the IMF when the central bank had nearly run out of usable reserves. Korea came still closer to catastrophe, a situation which has improved following the election of Kim Dae-Jung, the forceful implementation of the IMF-supported program even before he takes office, and the start of discussions with commercial banks on the rollover of Korea's short-term debt.

"Indonesia, on the other hand, requested IMF assistance at an earlier stage, and at the start--in early November--the reform program seemed to be working well. But questions about the implementation of the program and the President's health, as well as contagion from Korea, all took their toll. Last week, after intense consultations and negotiations with the IMF, President Suharto decided to accelerate the reform program. Important measures to deal with banking sector difficulties and to increase confidence in the banks should be announced in the next few days. Corporate sector debt difficulties will have to be dealt with in a way that preserves the principle that the solution is primarily up to individual debtors and their creditors. The Philippines, for its part, has not escaped the turmoil, but its decision to extend the IMF-supported program that it had already been implementing successfully for several years has helped mitigate the effects of the crisis.

"The design of the IMF-supported programs in these countries reflects these similarities and differences. All three programs have called for a substantial rise in interest rates to attempt to halt the downward spiral of currency depreciation. And all three programs have called for forceful, up-front action to put the financial system on a sounder footing as soon as possible."

Jan 7, 1998. David E. Sanger, "Aid Programs for Thailand, Indonesia Show Signs of Faltering," New York Times.

"As the United States has focused on rescuing South Korea, the emergency programs to stabilize Thailand and Indonesia have begun to unravel, raising new fears about the effectiveness of the International Monetary Fund's prescriptions for stabilizing large regions of Asia.

"At the end of December, the IMF sent President Suharto, Asia's longest-serving leader, a strongly worded letter urging his government to carry out economic changes. Members of the Suharto family and close friends of the president, who hold huge financial stakes in the country's most lucrative businesses, have sought to dilute or evade such reforms.

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This page was last revised on January 12, 2000.