ECONOMICS: Reviewing IMF's role
Far Eastern Economic Review
May 14, 1998
In the Hot Seat:
Asian crisis triggers review of IMF's role
* By Salil Tripathi in Hong Kong
It's doing too little. It's doing too much. It doesn't know what it's
doing. Asia's economic crisis has thrust the International Monetary Fund
into the spotlight -- and opened it to pressures from all sides. From
Asian trade unionists to American congressmen, the critics are united
only in their insistence that the Fund should do things differently,
though few agree on what that should be.
Amid the clamour from those who want its mandate enlarged and
who want it reduced, the IMF's own vision of what role it should play is
starting to emerge. Rather than reacting to crises as they arise, it
wants to create an early-warning system that can anticipate problems and
allow time for solutions. That means promoting fuller disclosure of
economic data by governments and central banks.
"The new system should not be anchored on the powers of the IMF but
on information transparency," IMF Managing Director Michel Camdessus
said in Singapore on May 4. "Once information is available and
disseminated it will allow each country to compare itself with others .
. . It will force reforms."
The Fund is reassessing its role to meet complex demands that
founders could not have envisaged when it was set up 54 years ago. The
United States and other wartime allies met in Bretton Woods, New
Hampshire, in 1944 to create the World Bank and the IMF. Their roles
were simple then: The Bank would provide development finance; the Fund
would dispense bridge loans to tide member-states over
balance-of-payment crises and thus he stabilize exchange rates and
But since the fixed-exchange-rate system collapsed in the early
1970s, the Fund has lived from crisis to crisis. Defusing Latin
America's debt bomb kept it busy in the early 1980s; helping
post-communist Russia and Eastern Europe has occupied it from the late
1980s; and, since mid-1997, it has been struggling to keep Asia's
once-thriving economies from collapsing.
With each crisis, the IMF's role has broadened and deepened.
finds itself not only dealing with monetary stability but also demanding
structural reforms in the countries receiving its multibillion-dollar
loans. The Asian bailout is the largest in the Fund's history, and its
most intrusive. IMF prescriptions -- laxer labour laws in South Korea,
higher petrol prices in Indonesia, new bankruptcy laws in Thailand --
have triggered much of the controversy over its role.
However, amid the debate over its handling of the current crisis,
IMF is looking for ways to forestall future ones instead of scrambling
to cope with them as they happen. As its major shareholder, the U.S.
also is stepping up pressure on the Fund to require good governance and
transparency from members.
In a major mid-April speech, U.S. Treasury Secretary Robert
stressed the need for countries to be more open about their finances, to
enforce stricter regulation of domestic banks, and to share more risks
with the private sector. With global capital flows rising inexorably,
Rubin called for a new financial architecture "as modern as markets."
On April 16, a meeting in Washington of 22 finance ministers
industrial and developing countries adopted a "code of good practices"
aimed at increasing the quality and timeliness of reports on key
economic indicators (foreign debt, reserves, trade deficits). While the
code is not mandatory, IMF officials hope that the markets will reward
countries that offer more disclosure and punish those that don't,
thereby providing a surveillance system of sorts.
Still, the way the U.S. speaks and the IMF jumps worries its
"Never has the IMF's connection to its principal 'stockholder' been
displayed as prominently as it is now," declares Walden Bello, a senior
fellow at Bangkok's Chulalongkorn University who says the "words of
wisdom" coming from Rubin and Camdessus have become "virtually
Other critics complain that the Fund doesn't practise what it
preaches. Jeffrey Sachs of the Harvard Institute of International
Development says that while the IMF advocates transparency, it offers
virtually no public documentation of its own decisions -- apart from
scanty press releases that don't give the technical details needed for a
professional evaluation. Greater outside analysis of the IMF's policy
recommendations -- say, the view of an oil-industry expert on fixing
Indonesian petrol prices -- becomes important as the IMF moves away from
its traditional macroeconomic role into microeconomic management.
Partly addressing that concern, the IMF has begun posting information
on the Internet (www.imf.org), such as the letters of intent it signed
with governments. But critics feel the process is too random. Even IMF
supporters like Fred Bergsten, director at the Institute for
International Economics in Washington, want the Fund to publish the
now-confidential analysis behind its country outlooks.
IMF officials argue that the Fund's access to high-quality data
be cut off by countries loath to show their warts in public. "We can
only make information public with the consent of the respective
country," says Camdessus. "Each day, we have to perform this act of
balance on transparency while preserving the most valuable
asset-confidence in our relationship with each country."
If the IMF won't expose a country's weaknesses, analysts say,
could at least make clear the standards of transparency it expects
members to abide by, and name those that do. "The IMF has all the
information it wants to point out a country's vulnerability, but it
doesn't want to," says Ajay Kapur, group strategist at ABN Amro Asia.
"But nothing prevents the IMF from publicizing countries that follow