IMF fast losing relevance in Asia

As the Asian financial crisis struck 10 years ago, beginning in Thailand and then spreading rapidly to eight other economies in the region, the desperate call for help was answered from the West. In rode the International Monetary Fund (IMF) with the customary swagger of a powerful moneylender. For the next two years, the Fund supplied over $38 billion in loans to the affected countries, according to available reports. This financial bailout and other economic prescriptions to the affected countries such as Indonesia, South Korea and Thailand were given on conditions that the Washington DC-based international financial institution (IFI) thought was best, including strict austerity measures.

But times have changed. A meeting last Monday in Manila, hosted by the Asian Development Bank (AsDB), conveyed the tone of contempt with which finance and economic officials from the affected countries now view the IMF. It is a view built around the region’s rapid economic recovery over the past decade and its abundant foreign reserves to stave off a repetition of a similar crisis. The officials from Thailand, Malaysia, South Korea and the Philippines who spoke at the meeting are also warming up to the idea of an Asian Monetary Fund as an alternative to the IMF.

“Asia now needs to be the one to manage the global financial system,” said Thai Finance Minister Chalongphob Sussangkarn. “We cannot let debtor nations manage the global financial system. The IMF is more like a debtor monetary organisation, we need a creditor monetary organisation.” Long-time critics of the IMF are hardly surprised by the hostility leading financial and economic players harbour towards this IFI.

“This is to be expected since the IMF positioned itself on the wrong side of the Asian financial crisis. Its solutions made the situation worst,” Walden Bello, executive director of Focus on the Global South, a Bangkok-based regional think tank, said. “The IMF lost its legitimacy and relevance in the region as a result.”

Among the IMF’s solutions were the financial packages aimed to save foreign banks and speculative creditors than to help the local people, who were the worst affected, added Bello. “The IMF also used the crisis to push through economic liberalisation policies that it and its backers in the US failed to achieve earlier in these Asian economies.” The IMF’s multi-billion dollar packages exacerbated the problem, argued The Jakarta Post. “In Indonesia, the number of poor people jumped from 34 million in 1996 to almost 50 million in 1998.”

Till the crisis, which began on July 2, 1997, the affected countries had ridden a wave of prosperity and growth that earned them names such as the “Asian Tiger economies” or being known as the “Asian miracle.” But when Thailand floated its currency, the baht, after having pegged it to the US dollar for years, its value sank dramatically. This financial flu spread to Indonesia, Malaysia, Philippines, South Korea, Singapore and Taiwan, among others. Some currencies lost over 50% in value, while some economies contracted by 13% after the crisis.

The cold stares that the IMF is receiving adds to a growing trend pointing to its irrelevance in the developing world, says Bello. “Countries are looking for other sources of finance than the IMF. China has emerged as a major player.” — IPS