IMF Fans Flames (fwd)

[Sid Shniad <shniad@xxxxxx>]

>                    The IMF is supposed to put out economic
>                    fires, not fan the flames.
>
>  The URL for this news report will be generated when Jan 13 edition
>  is posted to the newspaper's website.  Then I suggest that you look at:
>  http://www.thestar.com/thestar/back_issues/index.html
>  Look under editorials for January 12
>
>
>   Monday   January 12, 1998   The Toronto Star  Editorial
>
>                    IMF may be hurting, not helping, Asia
>
>                    In hindsight, it's easy to see what caused
>                    the crisis that has brought the seemingly
>                    invinceable Southeast Asian economies to
>                    their knees.
>
>                    But the people charged with rescuing these
>                    economies appear to have very little
>                    foresight in charting a course to
>                    extricate the 350 million Asians suffering
>                    through this mess.
>
>                    By pegging their currencies to the U.S.
>                    dollar, Thailand, Korea, the Philippines,
>                    Malaysia and Indonesia were asking for
>                    trouble when the dollar started to rise in
>                    1995. As the dollar pulled their
>                    currencies higher, these nations priced
>                    themselves out of crucial export markets
>                    on which they depended to earn foreign
>                    exchange.
>
>                    At the same time, Western banks kept
>                    shovelling short-term loans into Southeast
>                    Asia, where they were used to finance
>                    speculative real estate deals. Since the
>                    interest charges on these loans had to be
>                    paid for in dollars, yen, francs and
>                    marks, the growing need for foreign
>                    exchange was set on a collision course
>                    with the declines in export earnings.
>
>                    The Asian currencies all began to give
>                    way, exposing the huge exchange rate risks
>                    which the domestic banks in these
>                    countries had taken on. Teetering on
>                    insolvency, these banks in turn found it
>                    even more difficult to service the foreign
>                    borrowings they had taken on. The
>                    situation deteriorated rapidly as foreign
>                    lenders panicked and called in their
>                    loans.
>
>                    Respected Harvard economist Jeffry Sachs
>                    says, ``There is no `fundamental' reason
>                    for Asia's financial calamity except
>                    financial panic itself. Asia's need for
>                    significant financial sector reform is
>                    real, but not a sufficient cause for the
>                    panic, and not a justification for harsh
>                    macroeconomic policy adjustments.''
>
>                    Yet that's precisely what the
>                    International Monetary Fund is demanding
>                    from these countries - a severe
>                    macroeconomic tightening that is sure to
>                    push them deep into recession.
>
>                    The IMF says it's the the only way to
>                    restore confidence and calm the markets.
>                    But that's just a euphemism for saying
>                    that foreign lenders who eagerly took on
>                    these risky loans must be assured that
>                    they will get all their money back - no
>                    matter how much pain ordinary Asians must
>                    bear.
>
>                    Not only is such an approach unfair, Sachs
>                    makes a strong case that it's
>                    counterproductive. He says the policies
>                    imposed by the IMF on Korea have only
>                    intensified the panic, to the point where
>                    Korean banks may now be on the verge of
>                    default. ``Just one day after the (IMF)
>                    measures were unveiled, the eleventh
>                    largest conglomerate declared bankruptcy
>                    when Korean banks abruptly refused to roll
>                    over its short-term debts.''
>
>                    How does that restore confidence or help
>                    anyone out?
>
>                    And Sachs isn't the only one asking such
>                    questions. The Wall Street Journal
>                    reported last week that Joseph Stiglitz,
>                    chief economist at the World Bank, the
>                    IMF's sister institution, and former top
>                    economic adviser to U.S. President Bill
>                    Clinton, is openly critical of the IMF
>                    approach. ``These are crises in
>                    confidence,'' he says. ``You don't want to
>                    push these countries into severe
>                    recession. One ought to focus . . . on the
>                    things that caused the crisis, not on
>                    things that make it more difficult to deal
>                    with.''
>
>                    The IMF is supposed to put out economic
>                    fires, not fan the flames.
>
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