IMF defends Asia deals, WB denies rift
IMF defends Asia deals, WB denies rift
WASHINGTON (Reuters): The International Monetary Fund defended
its reform recipes for Asia on Thursday while the World Bank,
whose officials have questioned IMF-mandated high interest rates,
said it never intended to criticize the fund.
"There has never been any doubt on our part that the
International Monetary Fund has carried out this most difficult
task (of restoring Asian growth) with strength and judgment,"
World Bank President James Wolfensohn said in a statement.
The World Bank's chief economist Joseph Stiglitz on Wednesday
lashed out at the high interest rates prescribed by the fund for
Asia's troubled economies, describing them as pain for pain's
sake.
"One should not have excessively contractionary monetary and
fiscal policies," Stiglitz told reporters.
"I'm very much of the view that pain for its own sake is not a
virtue, and that pain (of very high interest rates) doesn't
restore confidence in the economy."
His comments were echoed by international financier George
Soros, who said on Thursday that the IMF was "part of the
problem" in the world financial system.
"The present mode of functioning of the International Monetary
Fund is far from satisfactory. They are, in fact, part of the
problem," Soros told a meeting launching his latest book. He also
criticized the fund's interest rate policies.
IMF programs "impose punitively high interest rates in order
to stabilize the currency and reestablish the ability of the
debtor country to service its debts," said Soros.
The World Bank report said tough initial policy prescriptions
had failed to lift Asia's crashing currencies or restore investor
confidence. It warned of a substantial risk of global recession
and said some countries might need to impose limited controls on
capital flows.
The IMF has been urging countries to keep interest rates high
as part of a string of multibillion dollar rescue deals for
Asia's one-time tiger economies last year.
Fund officials said high rates were essential to defend
fragile currencies, and they urged countries to rein in spending
to curb current account deficits and make money available for
much-needed financial sector reforms.
But they have amended their policies considerably since the
start of the crisis and now allow countries to run budget
deficits and spend their way out of recession.
Shailendra Anjaria, director of external affairs at the IMF,
said IMF reform policies were appropriate, and he told the World
Bank to stick to its mandate of development and structural
reforms.
"What is clear is that the World Bank has a mandate in the
structural area and in the development area, and the IMF has its
mandate in the area of macroeconomic policies. I think if we
respect each other's mandates, we can work well together," he
said.
Anjaria said the countries hit by the turbulence had no
alternatives to high interest rates.
"The idea that the policy mix was fundamentally incorrect is
just wrong," he said. "We would say there is no alternative but
to maintain high interest rates for a short period in the
aftermath of an exchange rate crisis which comes in wake of the
exhaustion of international reserves."
The IMF and the World Bank were both set up in 1944 as part of
efforts to rebuild the war-torn world economic system.
Their roles are separate -- the fund looks at economic
policies and the bank at structural issues like bank reform --
but Asia's rapidly unfolding crisis increased the overlap as the
IMF took on increased responsibility for bank sector reform and
other structural change.