> 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. > > Contents copyright © 1996, 1997 The Toronto Star
