IMF's $100b Asian bailout targets in growing danger
IMF's $100b Asian bailout targets in growing danger
LONDON (Reuters): Tough targets set by the IMF for more than US$100 billion of Asian bailouts were in growing jeopardy on Tuesday following a disappointing Indonesian budget, analysts said.
Indonesia's failure to meet budget targets set by the International Monetary Fund (IMF) followed Thailand's call on Monday for a review of its belt-tightening requirements.
"The breach of IMF requirements will further erode confidence," ANZ Investment Bank said in a note on the Indonesian budget.
South Korea also said on Tuesday it was discussing changes in macroeconomic targets with the IMF to take account of the country's deteriorating economy.
Continuing currency falls have pushed up the cost of Asian countries' foreign debts while deteriorating economic prospects will crimp government revenues.
Analysts said the difficulties faced by governments in meeting the demands of the IMF raised questions as to whether the Fund's bitter medicine was the right prescription for the region's economic ills.
It also highlighted how quickly basic economic assumptions could be blown seriously off course.
"These agreements, in terms of the growth, inflation and budget forecasts, were rushed through pretty quickly without real reference to the dynamism of the crises unfolding," said Graham Neilson, Asia economist at Banque Paribas.
"The collapse of the baht and rupiah since these targets were first agreed makes them totally unrealistic. It's inevitable that there will be an ongoing review."
But the growing demands for a rethink of the basic numbers after the money has started to be disbursed poses a dilemma for the IMF.
No-win situation
"The IMF is in a no-win situation," said John Thorn, manager of Asian equity sales at Daiwa Europe.
"If they are too aggressive, these countries will balk and go down the tube. But if the Fund capitulates it will mean it has no teeth...The ball is obviously up in the air at the moment."
Indonesia's President Soeharto disappointed markets by failing to set a fiscal surplus of one percent of gross domestic product (GDP) for 1998/99 (April-March) as demanded by the IMF, producing instead a balanced budget.
There was also widespread skepticism about the budget calculations given optimistic forecasts for revenues and a forecast rupiah/dollar exchange rate of 4,000.
The rupiah was last trading near its all-time low of 7,700, hit by the disappointing budget news.
Thailand, which was first to receive a $17.2 billion multilateral bail-out led by the IMF, has seen its economic circumstances deteriorate dramatically since the package was agreed in August.
The austerity measures prescribed by the Fund were based on expectations that the baht would stabilize around 32 per dollar and GDP would grow by at least 2.5 percent in 1997.
In fact the baht has fallen below 52 and growth last year is put at 0.3 percent.
Indonesia, which agreed an IMF-led bail-out of over $40 billion in October, faces similar problems and even South Korea, which only agreed its $60 billion package on Dec. 3, says circumstances have already worsened materially.
Governments may have little choice but to seek IMF acceptance for new macroeconomic targets. But the risk of a showdown with the IMF may further undermine investors' faith in shaky Asian currencies, analysts said.