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.