Replacing IMF with Asian Fund

Henry C.K. Liu hliu at mindspring.com
Mon May 31 06:05:56 PDT 1999


Business Time On Line - Singapore Monday 31 May 1999

Attack on IMF could lead to revival of Asian Monetary Fund

ADB Institute paving way, with calls for alternative remedies

By Anthony Rowley in Tokyo

THE Tokyo-based Asian Development Bank

Institute is mounting a frontal assault on the

tactics adopted by the International Monetary

Fund (IMF) in dealing with the Asian financial crisis,

and is promoting alternative approaches which it

claims would minimise economic damage caused by

IMF prescriptions.

Some believe that the move may herald a revival of

Japan's earlier proposal for an Asian Monetary Fund.

Financial crises of the kind that have erupted across

Asia "are of a new nature and require new policy

responses", declares the recently appointed dean of the

ADB Institute, Masaru Yoshitomi.

One of these is the provision of "credible emergency

financing from official sources, with less strings", he

says in what amounts to a direct challenge to tight IMF

conditionality.

In a report prepared since Mr Yoshitomi took the helm

at the Tokyo-based research and training centre, IMF

policies are blamed for turning Asia's financial crises

"into something far more serious".

It said the IMF approach led to "the collapse of real

economic activity" through the mistaken application of

"conventional policies" such as monetary tightening,

fiscal consolidation, structural reforms and the use of

exchange rates to influence output and expenditure.

If different approaches had been adopted, such as

"provision of ample liquidity and low interest rates",

the severity of the crises could have been reduced and

the impact on real economies minimised, argues Mr

Yoshitomi.

Instead, the IMF confused Asia's "capital account"

crises, caused by massive international capital flows

and a surfeit of short-term debt, with "traditional

current account crises caused by factors such as high

inflation, low savings and fiscal deficits", he says.

The ADB Institute plans to take this message boldly

into the "enemy camp" by making special

presentations at this year's annual meeting of the IMF

and the World Bank in Washington, as well as

spreading the alternative gospel through a series of

seminars and other presentations.

Asian bureaucrats coming to the ADB Institute for

training in monetary affairs will also be tutored in these

non-orthodox approaches.

The assertive posture being adopted by the institute

matches the more independent line that the

Manila-based Asian Development Bank (ADB) itself is

pursuing under its recently-appointed president Tadao

Chino.

Mr Chino has, in effect, rejected the supremacy of the

World Bank as the final arbiter of global development

policy, and has called for "competitive pluralism"

among development banks in deciding what

approaches to adopt.

Some analysts believe that the ADB Institute is

likewise preparing to challenge the IMF's global

prescriptions and to promote "development paradigms

for Asia" in the monetary as well as in the

development sphere.

The ADB Institute has already challenged one aspect

of IMF supremacy by securing a contract from Asean

to conduct regular surveillance of member's

economies, and is pushing now into other areas of

IMF territory.

Japanese officials admit that Tokyo's proposal for an

Asian Monetary Fund put forward at the onset of the

regional currency crisis in 1997 was not backed

sufficiently by research, and that more formal

groundwork needs to be laid.

This is what the ADB Institute appears to be doing

now. Its original dean, former Philippine finance

minister Jesus Estanislao, resigned abruptly at the end

of last year after just one year in office and Mr

Yoshitomi was selected by the Japanese

government-funded body to take his place.

A former senior Japanese financial official with

experience as an economist at both the IMF and the

Organisation for Economic Cooperation and

Development (OECD), Mr Yoshitomi is regarded as a

heavyweight possessing the administrative and

intellectual skills needed to establish the credibility of

the ADB Institute as a centre for alternative

development and monetary paradigms.

He also has a prominent academic record, including

that of being visiting executive professor at

Pennsylvania's Wharton School.

Eisuke Sakakibara, the high-profile Japanese

bureaucrat who is credited with having devised the

Asian Monetary Fund (AMF) plan, said last week in

Australia that the AMF had been abandoned too

easily.

Some expect that Mr Sakakibara and others (including

the ADB Institute) will now work to build an

intellectual constituency for an Asian fund.

Another policy instrument which the ADB Institute

will push for under Mr Yoshitomi is the establishment

in Asia of "collective measures to restore systemic

currency stability, including joint interventions".

Japan has been a lead player in promoting regional

currency stabilisation agreements but these were not

sufficiently well developed at the time when the Asian

crises erupted to stave off collapses.

Yet another plank of the institute's "new policy

responses" to crisis situations is the "coordination of

demand expansion by crisis-hit neighbours, rather than

competitive devaluations or desperate interest-rate

hiking".

This, too, argues against having the IMF act in a

firefighting role once crises have erupted. It favours,

instead, formal economic and monetary cooperation

frameworks among Asian countries, so that crises can

be anticipated and forestalled.



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