SEOUL: When the International Monetary Fund last held its annual meeting in Asia — in Hong Kong in 1997 — it was leading the rescue of the region’s wrecked economies. This time, with bitter memories of those days lingering, its role in Asia is less sure.
The backdrop to this month’s meeting in Singapore is of a region where economies have long recovered. And with growing confidence have come demands that Asia be given a far bigger voice in how the IMF is run.
An iconic image of the 1997-98 Asian financial crisis shows Michel Camdessus, then the managing director of the International Monetary Fund, standing with arms folded, looking down on Indonesian President Suharto signing a loan deal he had only reluctantly agreed.
Mr Camdessus insisted his posture was one of respect. But the image was taken by others as symbolising an arrogant and Western-dominated IMF imposing punitive conditions on countries so desperate for help they had no choice but to agree.
The photograph was taken four months after the IMF’s Hong Kong meeting. Another four months later, Suharto’s 32 years in power were over and he resigned in the face of an eruption of protests triggered by Indonesia’s broken economy.
“The IMF learnt an important lesson from its role in the 1997/98 Asian crisis in that its previously rigid austerity programmes must be flexibly applied to different needs in emerging countries,” said Somjai Phagaphasvivat, a political scientist and economics professor at Bangkok’s Thammasat University.
“In Thailand’s case, its initial rescue programme proved an overdose that aggravated, rather than improved, the situation then. It bankrupted a large section of the troubled Thai corporate sector before we saw slow recovery.”
The international community committed some $125 billion to the rescue as Thailand, South Korea, Indonesia and the Philippines all required bail-outs.
But the IMF also prescribed extremely high interest rates to stabilise their currencies, sending many companies into bankruptcy and driving unemployment sharply higher.
Critics argued that good companies as well as poorly run ones ended up being swept away due to IMF policies.
Nearly a decade later, the bulk of the debts have been paid off.
“We are now back to a central role of general physician,” the IMF’s Asia/Pacific Director, Akira Ariyoshi, told Reuters, pointing to his organisation’s traditional role of surveillance and ensuring financial stability in the world.
The Fund forced improvements in such areas as structural reform and corporate governance that it saw at the root of Asia’s financial troubles. For instance, it pushed for banks to develop better ways to assess creditworthiness after years of government-directed lending.
While the region has long recovered from the crisis, there is still a sense of grievance with how the IMF handled it.
“It (the IMF) needs to try harder to enhance surveillance for a potential crisis, instead of just coming up with a package after the crisis began,” said one South Korean official.
However, operators in financial markets say they are glad of the more open environment, including at the IMF, that has since emerged.
IMF ROLE: Less clear is the role the IMF can play now.
The Fund is arguing for greater voting rights, and therefore more say in IMF affairs, for certain Asian states. Ariyoshi said that reform is necessary for its credibility in the region.
“The IMF retains a perception of being a proxy of economic superpowers the United States and the EU,” said Thailand’s Phagaphasvivat. “Emerging countries still need the IMF but their representatives like India and Brazil should have a bigger voice in this organisation.”
On Thursday, the IMF agreed to increase the voting power of China, South Korea, Turkey and Mexico in a package to be ratified by the Fund’s governors in Singapore this month.—Reuters