WB, IMF to discuss money crisis

WB, IMF to discuss money crisis

WASHINGTON (AFP): The recent Asian currency crisis will likely top the agenda of the annual meetings of the World Bank and the International Monetary Fund (IMF), set to begin in Hong Kong today with a series of seminars and news conferences.

The IMF in particular will aim to draw policy lessons from the regional flap that has shaken the currencies of Thailand, Indonesia, Malaysia and the Philippines since July.

Already, the Fund has suggested that it acted promptly and effectively in its response to the crisis.

One top Fund official emphasized that information was available and warnings were issued in the crisis' early stages, unlike the Mexico peso crisis of late 1994-early 1995, which caught everyone by surprise.

What is happening in Asia, according to deputy IMF managing director Stanley Fischer "is not a crisis which caught the international community unawares."

"There's more contagion than we expected but nothing like 1995," when the Mexican crisis prompted IMF assistance valued at 20 billion dollars.

The IMF warned Thai authorities as early as July 1996, when the Fund completed a consultation under Article IV, according to the organization's annual report for 1997.

The Fund told Thailand that "the level of short-term capital inflows and short-term debt were somewhat high," the IMF said cautiously.

IMF directors called on Thailand to exercise "caution in the use of foreign savings," and "recommended a greater degree of exchange rate flexibility."

Fund officials said "early action was required to reduce the current account deficit," whose size "increased Thailand's vulnerability to economic shocks," according to the report.

And IMF director-general Michel Camdessus recently did not mince words, saying Thailand "got its priorities wrong" and precipitated "a serious regional crisis."

The crisis -- including a devaluation of the Thai baht and the adoption of a floating exchange rate -- could have been settled without spreading to its neighbors if it had been dealt with in the summer of 1996 instead of last July, said Camdessus.

The IMF and G-7 finance ministers at the Hong Kong meetings are expected to highlight the need to tighten banking oversight mechanisms in a bid to prevent crises similar to Thailand's.

But the recent currency crisis could challenge the IMF's new policy prescriptions as the Fund pushes for financial liberalization.

The IMF's interim committee will be looking at amending the institution's charter to give it a role as a promotor of freeing up and facilitating capital flows.

But in light of the slide of currencies in Thailand, Indonesia, Malaysia and the Philippines, which are heavily bolstered by foreign financing, the project threatens to stir up considerable controversy.

Stanley Fischer, the IMF's deputy managing director, believes the Asian currency woes will not slow the process of financial deregulation, and other experts are sure that the best thing to do now is wait.

World Bank president James Wolfensohn will be focusing on the fight against corruption and encouraging private sector investment in developing country infrastructure, said Alex Fhakow, a development committee official at the Bank.