NOVEMBER 6, 2000 VOL. 156 NO. 18

The IMF in Asia
The Neo-Imperialist grandmother
By BARRY HILLENBRAND Washington

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Economist John Maynard Keynes once suggested that when the International Monetary Fund imposed strict conditions on a nation seeking help for its ailing economy, the fund was merely "being grandmotherly." But Thais and other Asians who had to turn to the Fund for help after the 1997 financial crisis complain that grandmother was never like this. Some of the structural changes the IMF demanded not only inflicted unnecessary pain on these countries' populations but failed to achieve the intended effect. Recovery everywhere has been slow and uneven. The IMF, critics also charge, has attempted to reform the economies of developing countries into the image and likeness of Western industrial nations—a new kind of imperialism.

A well-researched report issued this month by Morris Goldstein, a former IMF staffer, argues that some of these complaints have merit. The Fund bungled bank closures in Indonesia and caused a harmful credit crunch in South Korea and Thailand by demanding increases in bank capitalizations. But Goldstein also contends that some of the IMF's actions worldwide, while unpalatable, were effective and necessary. Had the Fund not administered its painful medicine, many of the economies would have collapsed. In some cases the governments involved were unwilling to impose difficult reforms themselves because they feared the political consequences. Blaming foreign pressure and the IMF for the hardships is a convenient out.

What Goldstein also finds, though, is that while the Fund has been setting out harsh conditions for its loans since its inception, in recent years—and during the 1997 crisis in particular—its experts have begun to micromanage the economies they have come to rescue. In Indonesia, the IMF demanded measures that phased out the local content programs of motor vehicles and eliminated the monopolistic Clove Marketing Board. In Korea, the Fund insisted on trade liberalization programs that favored imports and battered small local industries that were already struggling from the effects of a faltering economy.

Goldstein says that where the Fund went wrong was in becoming "excessive in both scope and detail." There was no need, he says, for the Fund to require Thailand to remove real-estate taxes on foreign purchases of condominiums or to insist on privatization of state enterprise as part of its conditions for getting its bailout. The IMF justified this sort of meddling on the grounds that it increased competition and internationalized the economy. These were commendable goals, says Goldstein, but they created serious political problems and deflected the IMF's attention away from its main task: rescuing and reforming the financial institutions of the crisis nations.

Goldstein concedes that the task of setting reasonable guidelines for the IMF will be complicated. Horst Köhler, the Fund's new head, says he wants to reform its procedures. But economists are far from unanimous on precisely which measures imposed during the crisis were helpful. What they can agree on is that when it comes to making up lists of reforms in the future, less might just be more.

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