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.