Camdessus links Asian practice of crony capitalism to crisis

Camdessus links Asian practice of crony capitalism to crisis

BISHKEK, Kyrgyzstan (Reuters): The International Monetary Fund (IMF) had harsh words for some Asian states on Wednesday, with managing director Michel Camdessus naming "crony capitalism" as a major factor behind the region's economic crisis.

With Indonesia still reeling from the impact of financial collapse, dragging other emerging markets in its wake, he also blamed leaders for not addressing "overheating pressures" quickly enough and not ensuring exchange rate flexibility.

"Under the nice facade of market economics, there was a high degree of inappropriate government intervention, including lending based on personal connections," Camdessus said.

In an address to an economic conference in the Kyrgyz capital, he added: "When the structure of ownership is not transparent...when too many ad hoc decisions are taken and when market forces are prevented from playing their normal disciplining role, serious imbalances and deadly inefficiencies can build up."

Camdessus said that Asian "tiger" economies like Thailand, South Korea and Indonesia achieved high growth rates quickly by implementing many key requirements, including macroeconomic stability and outward-looking policies.

Those policies and the impact of globalization of the world's financial system, helped Asian countries attract nearly half of the $235 billion total private capital investment flows into developing and transition economies in 1996. But they failed to meet the increasing demands of economic success because domestic institutions and policies were neither strong nor flexible enough.

Investments were also often wasted.

"Subsequent events have shown that some of those funds were not invested wisely," he added.

Camdessus said that success in the global economy relied on governments allowing market forces to set prices, opening economies to foreign trade, achieving low inflation and creating stable institutions to give investors confidence.

Dubbing transparency the "golden rule" of economic growth, he said that a lack of data helped conceal the extent of the woes facing the "tiger" economies, not only from the outside world, but from the Asian countries themselves.