IMF's $100b Asian bailout targets in growing danger<\/p>\n
LONDON (Reuters): Tough targets set by the IMF for more than
\nUS$100 billion of Asian bailouts were in growing jeopardy on
\nTuesday following a disappointing Indonesian budget, analysts
\nsaid.<\/p>\n
Indonesia's failure to meet budget targets set by the
\nInternational Monetary Fund (IMF) followed Thailand's call on
\nMonday for a review of its belt-tightening requirements.<\/p>\n
\"The breach of IMF requirements will further erode
\nconfidence,\" ANZ Investment Bank said in a note on the Indonesian
\nbudget.<\/p>\n
South Korea also said on Tuesday it was discussing changes in
\nmacroeconomic targets with the IMF to take account of the
\ncountry's deteriorating economy.<\/p>\n
Continuing currency falls have pushed up the cost of Asian
\ncountries' foreign debts while deteriorating economic prospects
\nwill crimp government revenues.<\/p>\n
Analysts said the difficulties faced by governments in meeting
\nthe demands of the IMF raised questions as to whether the Fund's
\nbitter medicine was the right prescription for the region's
\neconomic ills.<\/p>\n
It also highlighted how quickly basic economic assumptions
\ncould be blown seriously off course.<\/p>\n
\"These agreements, in terms of the growth, inflation and
\nbudget forecasts, were rushed through pretty quickly without real
\nreference to the dynamism of the crises unfolding,\" said Graham
\nNeilson, Asia economist at Banque Paribas.<\/p>\n
\"The collapse of the baht and rupiah since these targets were
\nfirst agreed makes them totally unrealistic. It's inevitable that
\nthere will be an ongoing review.\"<\/p>\n
But the growing demands for a rethink of the basic numbers
\nafter the money has started to be disbursed poses a dilemma for
\nthe IMF.<\/p>\n
No-win situation<\/p>\n
\"The IMF is in a no-win situation,\" said John Thorn, manager
\nof Asian equity sales at Daiwa Europe.<\/p>\n
\"If they are too aggressive, these countries will balk and go
\ndown the tube. But if the Fund capitulates it will mean it has no
\nteeth...The ball is obviously up in the air at the moment.\"<\/p>\n
Indonesia's President Soeharto disappointed markets by failing
\nto set a fiscal surplus of one percent of gross domestic product
\n(GDP) for 1998\/99 (April-March) as demanded by the IMF, producing
\ninstead a balanced budget.<\/p>\n
There was also widespread skepticism about the budget
\ncalculations given optimistic forecasts for revenues and a
\nforecast rupiah\/dollar exchange rate of 4,000.<\/p>\n
The rupiah was last trading near its all-time low of 7,700,
\nhit by the disappointing budget news.<\/p>\n
Thailand, which was first to receive a $17.2 billion
\nmultilateral bail-out led by the IMF, has seen its economic
\ncircumstances deteriorate dramatically since the package was
\nagreed in August.<\/p>\n
The austerity measures prescribed by the Fund were based on
\nexpectations that the baht would stabilize around 32 per dollar
\nand GDP would grow by at least 2.5 percent in 1997.<\/p>\n
In fact the baht has fallen below 52 and growth last year is
\nput at 0.3 percent.<\/p>\n
Indonesia, which agreed an IMF-led bail-out of over $40
\nbillion in October, faces similar problems and even South Korea,
\nwhich only agreed its $60 billion package on Dec. 3, says
\ncircumstances have already worsened materially.<\/p>\n
Governments may have little choice but to seek IMF acceptance
\nfor new macroeconomic targets. But the risk of a showdown with
\nthe IMF may further undermine investors' faith in shaky Asian
\ncurrencies, analysts said.<\/p>",
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