IMF sees short-term Asian capital controls<\/p>\n
SEOUL (Reuters): Short-term capital controls may be adopted to
\navert the kind of regional contagion that caused a serial swoon
\namong Asia's economies last year, the IMF's Asia-Pacific Director
\nHubert Neiss said on Monday.<\/p>\n
Speaking to a media conference on the Asian financial crisis,
\nNeiss said the deliberations about the extent of these controls
\nwere still going on, apparently with the IMF's blessing.<\/p>\n
\"My only prediction is that it will lead to some measures that
\nwill make it difficult for banks to run up short-term debts to
\nforeigners,\" he said.<\/p>\n
He said this would likely be done through a combination of
\nprudential regulations and taxes on foreign exchange deposits.<\/p>\n
South Korea was on the brink of national default on its short-
\nterm obligations last December after exhausting its foreign
\nexchange reserves in a futile bid to prop up its won currency
\nduring the regional currency crisis that began last year.<\/p>\n
Neiss declined to elaborate on what the controls would entail
\nand where they would be implemented, saying the discussions were
\nabout controversial measures.<\/p>\n
\"It is important that (the controls) should not proliferate
\ninto general capital controls,\" Neiss said. \"They should act to
\nprevent excesses and abuses.\"<\/p>\n
An unexpected dimension of last year's financial crisis was
\nthe panicky withdrawal of capital and the calling in of short-
\nterm loans by foreigners under a psychology of fear and
\ncontagion.<\/p>\n
The new controls would try \"to protect countries from the
\nover-volatility of short-term flows\" of capital, Neiss said.<\/p>\n
\"No final conclusion has been reached,\" he added.<\/p>\n
Neiss also said the IMF was keenly watching Malaysia's
\nexperiment with more sweeping capital controls.<\/p>\n
Malaysia recently introduced a range of foreign exchange
\ncontrols to shield its ringgit currency and economy from
\nspeculators and global financial instability.<\/p>\n
\"This is an experiment that everybody will be carefully
\nwatching, and whether it succeeds over a short while or on an
\nenduring basis,\" Neiss said.<\/p>\n
\"Experience has shown that bankers and businessmen have proven
\nto be too clever about circumventing\" such controls, when they
\nhave been applied elsewhere, he said. \"It is not certain that
\nMalaysia can insulate its economy,\" Neiss said.<\/p>\n
\"Whilst you have these controls and you succeed in insulating
\ninterest and foreign exchange rates, whether you use this to push
\nahead with reforms is the question,\" he said.<\/p>\n
\"Maybe some breathing space will make it easier to push for
\nreform,\" Neiss said. \"Or maybe because there's breathing space,
\nthere's less pressure to make these reforms than there would be.\"<\/p>\n
Malaysia's central Bank Negara Deputy Governor Zeti Akhtar
\nAziz told Reuters on Friday the country could end the controls if
\nstability was restored to the financial markets.<\/p>\n
Neiss said the first phase of the crisis in Asia has passed
\nwith the stabilization of currencies and external debt. The IMF
\nausterity prescription was necessary for that to happen.<\/p>\n
The next phase of restructuring -- and dealing with a sharp
\nrecession -- comes with different medicine, Neiss said.<\/p>\n
\"The IMF is not preaching austerity, at the moment, it's
\npreaching fiscal expansion. We're in a different phase now.\"<\/p>\n
The IMF has arranged nearly $120 billion in bail-out packages
\nfor South Korea, Indonesia and Thailand.<\/p>\n
The big rescue deals in Asia and Russia have left the world's
\nlender of last resort with as little as $5 billion to cope with
\nmushrooming problems elsewhere.<\/p>\n
Neiss said the commitments to Asia were not endangered.<\/p>\n
\"The money committed to Asia over three years has been set
\naside and is still available,\" he said.<\/p>",
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