Asian woes cloud WB, IMF conference

Asian woes cloud WB, IMF conference

WASHINGTON (DPA): The Asian financial crisis can be sure to
hold stage center at the spring conference of the World Bank and
International Monetary Fund (IMF), to be held here this week.

Finance ministers and central bank governors who are flying to
the U.S. capital for the meeting are keen to find out just what
happened, whether the counter-measures were timely and
appropriate and, above all, to discuss whether and how encores
can be avoided.

A further agenda item is the further development of the world
economy, which according to the figures to be published by the
IMF on Easter Monday seems likely to level off this year.

The Japanese can expect to be called on by both the IMF and
their G-7 partners, who will be holding their traditional
gathering on the occasion of the World Bank conference next
Wednesday, to restructure their financial system and get their
economy back into growth.

Germany too can expect to be given a few well-chosen words of
advice. For years the IMF has warned Bonn not just to announce
reforms but to carry them out and take its foot off the economic
brakes.

The reforms in question include deregulation of labor markets,
cutting back the welfare state, axing subsidies and reducing
taxes.

So much has already been said about how the Asian financial
crisis came about that nothing new is likely to come to light in
Washington. It was triggered mainly by issues of monetary policy
as an instrument of industry policy.

In addition, however, it is gradually becoming clear that
Asia's problems differ in one key respect from earlier debt
crises in Latin America in the 1980s and in Mexico in 1994.

Back then, the creditors were for the most part governments.
This time they are almost entirely in the private sector, with
short-term bank loans having been invested in dubious long-term
projects.

This means that in future comparable cases private creditors
ought to be associated with the problem solutions from the outset
and not, as hitherto, have to rely on the IMF shouldering the
risks either wholly or in part.

Moral hazard

That should contribute toward a substantial reduction in the
moral hazard and in the role of the IMF, which is fond of seeing
itself as a kind of international financial fire brigade and
lender of last resort.

There are, in fact, good reasons for assuming that the IMF's
1995 rescue package for Mexico helped to pave the way for the
Asian crisis and that the subsequent bail-out packages have done
more damage than the original crisis.

International organizations tend to consider themselves
infallible and this tendency is particularly marked at the IMF.
Even so, under pressure from the industrialized countries IMF
officials are now increasingly coming to feel that it is better
to identify and to limit crises in time than to look away and
later to have to rush to the scene with hastily arranged multi-
billion-dollar rescue packages.

One issue that is to be discussed in Washington will be how to
improve the monitoring which began after the Mexican crisis to
ensure that when economic development takes a wrong turn it no
longer comes as the huge surprise it sometimes has in the past.

That said, IMF managing director Michel Camdessus continues to
object to warning markets in times of danger, fearing that doing
so could make potentially critical situations even worse.

It should nevertheless be no repetition of what happened last
year when, only a few weeks before the financial crisis hit Asia,
the IMF praised countries such as Thailand and Indonesia for what
soon turned out to be badly misguided policies.

An item that is not on the conference agenda is the important
issue of IMF reform, on which a discussion has been overdue for
years. But the industrialized countries are just deferring the
debate, while the IMF itself naturally has no interest in a
debate being held.