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.