No love lost in Asia for IMF as Fischer bows out

No love lost in Asia for IMF as Fischer bows out

By Alan Wheatley

TOKYO (Reuters): The International Monetary Fund (IMF) and its
harsh but necessary reforms must surely take some of the credit
for Asia's strengthened finances, which mean a re-run of the
region's 1997 balance-of-payments crisis is a remote threat.

But as deputy IMF chief Stanley Fischer, a central figure in
the management of the crisis, prepares to step down, the Fund is
still widely regarded across Asia as at best a necessary evil.

Some critics would no doubt delete the "necessary".

"If we look back to the programs imposed by the IMF, they
destroyed the Korean economy and they let foreign capital take
over," said Phil-sang Lee, a professor of finance and economics
at Seoul University.

By jacking up interest rates, cutting off credit to ailing
firms and opening up the economy and stock market to foreign
capital, the IMF followed free-market orthodoxy and refused to
see Korea was not ready for such wrenching change, Lee said.

"The prescriptions were not realistic. They didn't consider
the reality of the Korean economy and just prescribed according
to the textbook," he said. "But the Korean economy is not the
U.S. economy -- it's not Western-style capitalism."

Fischer, with long experience of being a whipping boy,
dismissed the charge that the IMF's medicine often makes its
patients sicker as "just plain wrong, wrong-headed".

At a news conference in Washington on Tuesday to announce his
intention to quit as deputy managing director later this year, he
acknowledged that the Fund kept fiscal policy too tight during
the first months of the Asian crisis.

"But I think the record speaks for itself, that the Asian
countries which followed the agreed programs with the Fund were
the ones that succeeded and came back most rapidly," he said.

"I think this institution has made the world a much better
place and will continue to do so," he added.

But that's not how it looks in Asia, even though all the
crisis-hit countries, except Indonesia, have graduated from their
IMF loans-for-reforms programs and are riding out the current
slowdown in global growth with only scattered evidence of
financial strain.

"I don't think the IMF is looked upon more favorably than
before," said Melina Nathan of the Institute of Defense and
Strategic Studies in Singapore.

Nathan said moves by the Fund to streamline the onerous
conditions it attaches to loans would help it ward off criticism
in borrowing countries that it is a heavy-handed micro-manager.

"But there'll probably always be tensions because
fundamentally the IMF's ideology is quite different from the
kinds of economic policies many countries want to follow. The IMF
still seems to be almost fanatically market-driven," Nathan said.

In Asia, that tension is most evident in the strained
relationship between the IMF and Indonesia, which is struggling
to meet the conditions set by the Fund for disbursement of a $400
million loan installment blocked since December.

Nathan also pointed to Vietnam, whose communist government is
being asked to implement politically difficult market-opening
reforms in return for a US$368 million IMF loan agreed last
month.

The shadow of the IMF also looms large over the Chiang Mai
Initiative, a planned web of currency swap lines connecting 13
Asian central banks that aims to avert a repeat of the 1997
financial crisis.

Malaysia, which thumbed its nose at IMF orthodoxy in the wake
of the crisis by adopting capital controls and a fixed exchange
rate, was very reluctant to link activation of the swaps to IMF-
supervised reforms.

It finally agreed only because it did not want to hold up the
ambitious scheme, said Stephen Leong of the Institute of
Strategic and International Studies in Kuala Lumpur.

The insistence of richer countries, notably Japan and
Singapore, on a role for the Fund illustrates that the IMF is far
from universally reviled in Asia.

"But the fact that questions are being raised about the IMF
says a lot in itself," Leong said.

He said Malaysia still sees no reason why the IMF should be
involved in overseeing the scheme. Not only is the money being
provided exclusively by Asian governments, but the Fund views the
world through a Washington prism and would be unable to grasp
Asia's specific needs if the swaps were tapped, he argued.

This, Leong said, was also the case during the 1997 crisis.

"Despite globalization, the local peculiarities of a country
have to be taken into full consideration, and this is where the
IMF failed," he said. "One size doesn't fit all."

Malaysia was roundly criticized for shunning the IMF during
the Asian crisis, but the global community had increasingly come
round to the view that the medicine it prescribed for itself was
quite effective, Leong said.

"We were able to pull through with less pain, less
retrenchment and less political and social turmoil," he said.