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.