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.