Looking into the IMF mirror: Thailand's experience

Looking into the IMF mirror: Thailand's experience

BANGKOK: Today is the fourth anniversary of the day that
Thailand joined the International Monetary Fund program following
the economic and financial crisis of July 2, 1997, when the baht
was untied from the US dollar. Some may remember that it was a
popular move because confidence in the government of the day to
handle the sinking economy was very low. But many may also
remember that the credit line extended to Thailand from the IMF
to weather the economic storm came not only with bitter medicine
but some wrong doses as well. When the last government decided to
graduate from the IMF program last year, it was a fairly popular
move.

In truth, nobody likes creditors who are always going to make
sure that the money they have lent will be properly spent and
that customers have the ability to make repayment. And to be
outside rather than under the IMF umbrella is something a country
should strive for. The ultimate message is: "Take good care of
your macroeconomic management, and you will be free from external
control."

Thailand today remains a member of the IMF and is repaying its
loan to the Washington-based institution. The IMF still makes
regular comments on the state of the Thai economy and public
policies. And the agency does make some direct comments when the
situation calls for it, regardless of what the government of the
day thinks.

We should look at such comments as a mirror on the economic
policies that the government is subjecting the country to. There
shouldn't be any hard feelings or overblown reactions. After all,
economics is also an art and not just a science. Furthermore, not
many experts in the country want to speak out against the
government at this time. So there is an even greater need for
alternative views from the outside.

Moreover, if we have learned anything from the 1997 crisis, it
is not to be arrogant and close our ears. Not that the IMF did
not make key mistakes in handling the Thai crisis. The most
serious one was to pursue the traditional policy of jacking up
interest rates, which led to a further plunge in the economy. But
many may also remember that the IMF had repeatedly told the Thai
authorities -- both ministers and central-bankers -- to detach
the baht from the fixed exchange system. The advice was ignored
and resulted in a bigger crisis than anyone could have imagined.

Last Friday, the IMF came up with a review of the Thai
economy. It seems to have given broad approval, though not
without reservations, to the economic policies of Prime Minister
Thaksin Shinawatra. Thaksin earlier had been angry at the IMF's
counter-argument to the government's move to raise interest
rates. The IMF is now careful in its choice of words.

"Most directors expressed concern at last June's increase in
interest rates, which was undertaken for objectives outside the
scope of the inflation-targeting framework, and in the absence of
inflationary pressures cautioned against further increases which
could undermine policy credibility, threaten the recovery and
jeopardize the financial position of banks and corporations," the
IMF said.

IMF directors also welcomed the Thai authorities' stated
intention not to increase interest rates for the rest of the
year, but the notice added: "In view of the weakening recovery,
some directors thought that lowering interest rates shouldn't be
ruled out."

Speaking in response to the IMF statement, Thaksin told
reporters on Friday that there was no need for a reduction in
interest rates at this time, because rates were still very low.

Another difference in degree, if not in principle, appeared
over the issue of central-bank independence. The IMF urged the
Thai government to press ahead with legislation to enhance the
agency's independence.

In response to the IMF statement, Finance Minister Somkid
Jatusripitak said: "The government hasn't intervened in the
central bank's work. However, the central bank's independence
must be under the framework of the government's overall policy."

We should regard these exchanges as healthy. But ultimately,
one side should not stay stubborn if the other side is right.

-- The Nation/Asia News Network