The wrong signal -- IMF's role in Asia

The wrong signal -- IMF's role in Asia

By Christian von Hiller

BERLIN (DPA): Indonesia is threatening to be a rerun of the
scenario that the world has already been observing in South
Korea. After President Soeharto agreed to bow to the harsh
demands made by the International Monetary Fund (IMF), Indonesia
is to receive financial aid totaling US$43 billion.

The fund gave South Korea a total of $57 billion when the
government there implemented a far-reaching clean-up program.
IMF president Michel Camdessus and the international creditor
banks believe that a global conflagration in the financial
markets has been averted in the nick of time.

And nobody would like to imagine what would have happened if
the international economic community had not stepped into the
Asian crisis so decisively.

But the IMF's generous aid package to South Korea has
meanwhile disappeared into thin air, as the currency continues
its downward spiral and the region's debtors are looking worse as
each day passes.

Isn't it possible that in its generosity the IMF has sown the
seeds for yet more and even worse financial disasters? This
question has grown more pressing since Camdessus raised the IMF's
status to that of a global fire service, always hurrying with
sirens wailing and full money tanks to the next economic
bushfire.

Market economics rests on the principle that profits are the
reward for risks and ventures. Conversely, this means that
businesses must also be prepared to take losses. The IMF has made
this premise inapplicable.

And the IMF has already broken these economic rules. Three
years ago it stepped into the Mexico crisis, thereby setting a
precedent for its Asian expedition. The expectation since then
has been that they will always be at hand in an emergency.

In Mexico's case, it wasn't the private creditor banks which
were expected to meet their suffering commitments. No, the IMF
and the U.S. government happily paid the bill.

Similarly in this latest crisis, the IMF was impervious to
German demands on the Monday before Christmas that private
creditor banks be forced to share some of the cost.

The private creditor banks will not be called to account for
their commitments in Asia. Yet it would be unhealthy for the
whole economic order if the IMF fosters a system in which the
profits are taken by private business players and the risks are
covered, through the agencies of the IMF, by society at large.

Such a model is doomed to failure. Regretably such
considerations do not seem to fit in Camdessus's concepts. While
he has installed himself as the grand crisis manager, the
consequences of his strategy can only mean that the IMF will
forever be shelling out ever larger sums with no prospect of
success.

Added to which, these large amounts only provide temporary
relief and give the wrong signal.

In Asia's case, such objections are obviously too late. But if
this debacle should teach us anything it is that this sort of
crisis can only be avoided by effective preventive measures.

Camdessus, however, is trying to force the IMF into a role
which, in a functioning global economy, it has no need for and
anyway cannot fulfill.