IMF applies inept conditions to Asia: Critics

IMF applies inept conditions to Asia: Critics

HONG KONG (Reuters): Asian critics of the International
Monetary Fund were gathering steam as the economic crisis
intensified over the weekend, hitting out at conditions attached
to aid packages that were not working.

"The IMF's position is to give an aspirin for every ailment,"
said Ajay Kapur, regional strategist at UBS Securities. "They dug
into their little medicine kit and started handing out aspirins.
And that is the problem."

The IMF applied inappropriate conditions to Asia because it
relied on its experience with nations in Latin America and
Africa, where economies were characterized by raging inflation,
high budget deficits and public sector debt, analysts said.

Martin Khor, director of international policy group Third
World Network wrote in the latest edition of the Far Eastern
Economic Review that the IMF did not understand Asia.

Regardless of accusations of cronyism, governments in this
region can, on the whole, boast of balanced budgets, low public
debt levels and high savings rates.

Rather than the wrecked national economies typical of nations
under IMF guidance elsewhere, Asia's problems lay in the private
sector, with private businesses responsible for building up
mountains of foreign-denominated corporate debt.

With currencies under attack, this debt burden has become
unmanageable -- and this is the problem that must now be dealt
with effectively and urgently, Asian analysts said.

"The IMF has failed," said one Hong Kong economist. "It's
failed in both Thailand and Indonesia, that is clear, in that it
was supposed to stabilize the balance of payments and provide
currency stability. It has done that in neither case."

Asian currencies, and the rupiah in particular, were still
under intense pressure despite gargantuan aid packages in South
Korea (US$57 billion), Indonesia (up to US$40 billion) and
Thailand (US$17.2 billion).

Until the over-riding issue of bad debt was confronted,
perhaps through a region-wide debt rescheduling, there was scant
hope that confidence could be restored soon, analysts said.

And a debt accord would be difficult in Indonesia, where bad
debt is spread among hundreds of corporations.

Harvard economist Jeffrey Sachs said on Saturday the IMF was
aggravating Asia's financial crisis, but he added that regional
economies should recover before long.

Sachs, director of the Harvard Institute of International
Development, told an international business conference in
southern India that the crisis in East Asian economies had
resulted from a "panic withdrawal" of funds from their markets.

"My sense is that the IMF added to the panic," he said. The
fund had erred by using the same rescue techniques employed in
the past instead of specific remedies tailored to the differing
needs of Asian economies, he added.

"The IMF took its normal remedy off the shelf and started to
apply it," he said. He criticized the Fund's demand for bank
closures in Indonesia, Thailand and South Korea as part of its
recent bail-out packages.

Some analysts said an urgent rethink of the IMF approach could
already be underway, with IMF officials expected to approve the
release of another tranche of aid while in Jakarta despite
Indonesia's failure to comply with conditions for a budget
surplus in its 1998/99 budget tabled last week.

In a bid to kill the threat of global contagion, the IMF also
relaxed aid conditions in South Korea. The Korean won soon
stabilized, proving the inappropriateness of IMF conditions and
its overall policy prescription, said Kapur.

"I think the IMF will back off," he said. "I think they'll get
a lesson in political reality in Jakarta, along with Asian
economics 101."

But other analysts said South Korea stabilized because it did
what Indonesia has failed to do -- take action to implement
structural reform, such as opening up its markets to foreigners.

But the IMF's demands for a further opening up of markets have
also come under attack in Asia, which views foreign ownership of
markets or industries with suspicion, considering it a loss of
economic sovereignty.

"What the rich couldn't do through bilateral or multilateral
pressures, they are now extracting by using the IMF loans as
leverage," wrote Khor, referring to strong Western interest in
owning Asian banks and financial institutions.