IMF admits mistakes in Asian crisis

IMF admits mistakes in Asian crisis

Associated Press, New York

For years, critics have accused the International Monetary Fund
(IMF) of being secretive, imposing overly austere policies on
developing countries in exchange for its loans and refusing to
look critically at its own policies - or admit its mistakes.

In the past, the IMF has brushed away such attacks.

But recently, the institution is showing signs of becoming
more openly self-critical. The IMF, which is holding its spring
meeting this weekend in Washington, has acknowledged its mixed
record in dealing with financial crises in Asia and Argentina and
is even owning up to some failures.

Consider the following:

- Last month, the IMF released a report on lessons learned
from Argentina's financial crisis of 2001 that conceded it had
missed signs of brewing danger. It said it was too optimistic
about the country's growth prospects and the success of reforms
it had urged.

- In March 2003, the IMF published a research paper concluding
that in developing countries, rapid financial market
liberalization - a long-standing condition for IMF loans -
sometimes leads to further instability, not economic growth. It
called the results "sobering."

- In 1998, the IMF's letter of intent with South Korea - which
spelled out the loan's terms - was a confidential document leaked
to the press. Now, the majority of agreements, as well as most
policy papers and research, are made public.

IMF officials say the institution has stressed greater self-
scrutiny and transparency ever since it came under fire for its
handling of the Asian financial crisis of 1997-98.

"The fund has learned that in order to do business, it needs
to do it openly and transparently. It needs to listen to its
critics, learn from them and engage in self-criticism," said
Thomas Dawson, chief spokesman for the institution of 184 member
nations.

"That doesn't always mean the critics are right," he said.

Still, even the IMF has conceded that its initial response to
the Asian crisis was too aggressive.

In exchange for emergency loans, the IMF required Thailand,
Indonesia and South Korea - which were unable to repay foreign
debts after a plunge in their currencies - to adopt a series of
"structural adjustments," including hiking interest rates,
cutting public spending and liberalizing financial markets.

When the measures did little to improve things - angering many
in the region - the IMF eased back on some of its demands.

Argentina's financial debacle of 2001, when it defaulted on
more than US$80 billion of foreign debt, was particularly
embarrassing for the IMF because it had been closely advising the
country on economic matters since the early 1990s and had held up
the nation as an exemplary model.

The crisis pushed nearly half the population into poverty and
sparked deadly riots.

In a paper examining what went wrong in Argentina, the IMF's
24-member executive board said the fund failed to sound the alarm
on a host of issues, particularly the country's "excessive"
borrowing and risks attached to the peso's peg to the dollar.

Also, in an attempt to boost its credibility, the IMF in 2001
created an Independent Evaluation Office, which last year issued
a report highlighting faults in the IMF's handling of crises in
South Korea, Indonesia and Brazil.

Critics have welcomed such moves, but say they don't go far
enough.

For one, they say that most of the IMF's post-crisis analysis
fails to acknowledge that its own prescriptions contributed to
the meltdowns.

"It's still halfhearted," said Joseph Stiglitz, Nobel
Economics Prize winner and a former chief economist at the World
Bank. "They're not self-critical enough to say maybe our model is
wrong."

Plus, so far there's no sign that the IMF is actually making
changes in its policies, opponents say.