Seeking ways to prevent new Asian-style financial woes

Seeking ways to prevent new Asian-style financial woes

By Helmut Maier-Mannhart

MUNICH (DPA): Credits worth a total of more than US$100
billion have been promised by the International Monetary Fund to
just three countries -- South Korea, Thailand and Indonesia -- to
help them avoid financial collapse as a result of the crisis
sweeping East Asia since last fall.

The money, now streaming into the countries under the IMF's
rescue action, naturally did not fall from heaven. Nor does the
fund possess its own printing press, to be cranked up whenever it
is in need of funds.

Rather, it is the taxpapers of member states who pay, through
the deposits their governments hand over to the Washington-based
IMF to provide it with working capital.

With this in mind, there is a growing background of public
concern that the money is not being well used, and echoes of that
could be heard last week at the joint IMF-World Bank annual
meeting in Washington.

German Finance Minister Theo Waigel and the president of the
Bundesbank, Hans Tietmeyer, were among those driving home the
message that it is inappropriate for the IMF to use taxpayers'
money to replenish coffers in countries which have been almost
unbelievably negligent in regulating their own economies and
financial systems.

Their message: these countries themselves set the fire, then
turned to the IMF and demanded that it race in and put out the
blaze -- with other people's money.

Moreover, they are demanding that it be done in a way that
protects the wealth of those most responsible for the economic
overheating that led to the financial crisis in the first place,
namely the banks and large private investors.

IMF rescue missions like the one underway in Asia, and that
carried out in Mexico a few years ago, send a signal to private
capital that bailouts will likely be launched in the case of
trouble. This has the effect of considerably reducing the risks
of entering these countries, and along with it the prudence that
should accompany -- or perhaps even deter -- these investments.
One other result is to make it more likely that such crises will
occur again.

Hence it is urgently necessary to rethink ways so that there
will be emergency measures to effectively help hard-hit countries
from their plight which do not, at the same time, play into the
hands of the speculators.

A related consideration is how to get private creditors of
these countries -- above all banks, investment funds and large
private investors -- to play a bigger role in managing financial
crises.

Waigel and Tietmeyer were among those making these demands,
although they did not spell out how they should be achieved. They
are well aware that among those financial institutions most
heavily involved in lending huge sums to the crisis-hit Southeast
Asian countries, provisions against future losses have been made;
yet they are not nearly large enough to cover the potential
downside.

A related and probably even more complicated question is how
to deal with investment funds whose capital outlays helped to
heat up local economies, yet had managers clever -- or lucky --
enough to pull their money out ahead of the big crash.

Of course, a discussion about whose financial moves may have
provoked the crisis is bound to lead precisely nowhere. It also
steers away from the necessary task of creating safeguards so
that damaging tidal waves of capital do not build up in future.
Therefore the IMF must be given full power to lay out the
economic and political framework, especially to better control
the financial markets than it can currently.

It must also have the means, argues the head of Deutsche Bank
Research, Prof. Norbert Walter, to support the creation of
regulated financial systems in countries in danger of slipping
into financial crisis. IMF personnel do not remotely have such
authority today.

Another important task is for IMF member countries to agree on
clear rules to decide which of them will have a claim to its
future credit assistance; access to the money would be contingent
on respecting the control mechanisms.

An effective early warning system and preventive intervention
tools are needed to prevent further financial crises of the
magnitude of the one still plaguing much of Asia.

It should be clear by now that anything less will amount to
merely treating the symptoms.