IMF get positive words from Sachs

IMF get positive words from Sachs

HONG KONG (Dow Jones): One of the International Monetary Fund's best-known critics, Harvard University Professor Jeffrey Sachs, had surprisingly positive words Wednesday regarding some of the fund's more recent actions in Asia, particularly this month's Indonesian bank closures.

Speaking to an investment conference in Hong Kong on Wednesday, Sach's firm underlying message was his well-documented view that the IMF fueled initial panic in Asia when it was called to bail out Thailand, Indonesia and South Korea in the second half of 1997 and that it went on to make many of the same mistakes last year in Russia and South America.

"It seems to me the IMF was the most panicky of all," he said. It forced these program countries to jack up interest rates in a blind defense of currencies and probably exacerbated the crises, he said.

One of Sachs's biggest criticisms of the IMF's Asian track record was its summary decision to force the Indonesian government to close 16 banks at the onset of its bailout program in October 1997, something the IMF has since conceded was ill- conceived.

In contrast, the strategy employed when 38 more banks were closed by Indonesia and the IMF earlier this month was commendable, the Harvard professor said.

"I think this round of bank closures really is a much better model," Sachs said.

He also welcomed comments from IMF Asia-Pacific Director Hubert Neiss, made at the same presentation Wednesday, that the latest methodology was planned over nine months, incorporating many elements that aimed to suppress panic.

"I agree with you this time was a vast improvement. You can see that with quite dramatic announcements you get very calm reactions. So I applaud the preparation this time around and think we've learned an important lesson that you don't do it from one day to the next, which is the way it was done back in 1997," Sachs said.

"I'm very, very happy to hear about these criteria on how to close banks and how complex it is to close banks," Sachs said.

Further, Sachs said that much of the problem with the Washington-based fund is beyond its control.

Financial markets, he said, react too strongly to the IMF's actions, ignoring prevailing fundamentals.

"A weakness of the international system is that everyone looks to the IMF for the thumbs up or thumbs down. This is a bizarre way to run the world," he told reporters at a briefing following his speech.

Sachs said the fund's power comes not from its ability to dispense money and countries' eagerness to secure it, but the ability of the IMF to sour on a government's policies and send bankers for cover. "What the IMF does, in ways which the markets probably by themselves wouldn't do, is stop massive amounts of money," he said.