Varying the IMF cure

The debate over whether the International Monetary Fund's rescue package exacerbated the problems of East Asian economies -- and to what extent -- forms a backdrop to the region's continuing troubles.

The fact is that "the IMF is the only game in town", as Maurice Greenberg, the former head of the U.S. Federal Reserve Bank, recently remarked. Either a country sticks resolutely to its own devices, like Malaysia, or it has to go to the fund. That puts the IMF in an extremely powerful position, and even its strongest supporters admit that the organization made mistakes in its initial response to the regional collapse. The outgoing chairman of its ministerial committee, Philippe Maystadt, has acknowledged with a call for a revitalization process following the Asian crisis.

Events show that, as no two economic crises are alike, there can be no set policy prescription to apply to them uniformly. A further complication arises from the way economics and politics interact. The IMF is not there to provide political solutions but its economic medicine can have powerful political consequences.

This requires a subtlety and a flexibility the organization sometimes seems to lack. The fund needs to develop strategies which enable it to respond to the particular circumstances affecting individual nations, rather than applying a similar formula each time. The tight fiscal and monetary policies imposed on Asia did not deal with the specific characteristics of the region, where relatively speaking budgets were in good shape, and where the problem was corporate debt rather than government borrowing.

Greater flexibility and a wider forum would enable the IMF committee to respond more appropriately in future. Instead of twice-yearly meetings of 24 finance ministers, Mr. Maystadt envisages working groups of policymakers and national experts who could pool inside knowledge and experience and also become more familiar with the functioning of the international monetary system.

The advantages of a closer and continual working relationship among national experts are clear. In calling for an end to the policy of noninterference by members of ASEAN, Thailand has also recognized the advantages of an open, proactive approach. This is the way ahead, in cooperation with a more open-minded IMF approach.

-- South China Morning Post