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  June 3, 2000  

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IMF revisits the scene of the crime

At least former IMF managing director Michel Camdessus had a sense of humor - though being bombarded with a cream pie at the Bangkok Unctad conference earlier this year probably stretched it a bit. The new IMF MD, Horst Koehler, well, is German, and humor is not his (or his nation's) strongest suit. He smiled a lot while in Bangkok earlier this week on the first stop of a five-nation Asia tour, but what he had to say (though we assume unintentionally) bored most of his listeners to tears.

The IMF, he said, ''should listen better to the people'', should refrain from ''lecturing and imposing'' conditions on crisis-hit countries, and ''focus more on crisis prevention''. Amen! We note with great interest and amusement that under its new chief the IMF has gotten some religion and is trying some pious talk and self-deprecation. Perhaps that's better than blowing into town, 50-bureaucrats strong, occupying suites on suites in Bangkok's premier luxury Oriental Hotel, and prescribing fiscal austerity or else . . . as happened in August 1997. But it hardly tells us anything new about the IMF's future role, or, for that matter, why it should continue to exist at all.

That Koehler also saw fit to issue an endorsement of the so-called Chiang Mai Initiative, the ill-conceived and likely never to be implemented Asean plus three (China, Japan, and Korea) currency-swap plan to fend off speculative attacks on regional currencies, may have pleased the bureaucrats who cooked it up on the sidelines of the Asian Development Bank conference a month ago. That he went beyond that, saying that establishment of an Asian Monetary Fund was worth discussing, may have pleased the intellectual author of that ill-begotten concept, former Japanese vice-minister of finance for international affairs, Eisuke Sakakibara, who once again had pushed it at the Chiang Mai ADB confab. To us, such endorsements and ''listen-to-the-people'' soothing smooth talk merely explain why US Treasury Secretary Larry Summers vigorously opposed Koehler's nomination to the IMF top job and confirm that he was right in doing so.

What Summers - not quite as radical as those who simply want to abolish the IMF - had wanted was a new MD with private sector and/or central banking experience capable of reforming the IMF from a meddlesome, bloated bureaucracy interfering in nations' sovereign affairs into a lean quick-reaction force concentrating on short-term capital-flow imbalances and emergency lending, but staying away from longer-term development banking functions. What he got is a life-long finance bureaucrat who helped make a mess of East-West German monetary unification, then served as head of state savings and loan associations noted for political loans and related corrupt practices, and before his move to Washington directed the marvellously successful efforts of the European Bank for Reconstruction and Development in aiding the transformation of the Russian and other East European economies. No wonder Larry was not a happy camper when German Chancellor Gerhard Schroeder personally intervened with US President Bill Clinton to get Koehler appointed.

But back to Thailand, the original scene of the IMF's gross mishandling of the Asian crisis. That crisis, said Koehler in Bangkok, is now all but over and the Thai economy - save for the nuisance of unresolved non-performing loans (37 percent of loan totals at last counting) - is firmly on the path of recovery. Naturally, his discussion partners, Prime Minister Chuan Leekpai and Finance Minister Tarrin Nimmanahaeminda, wholeheartedly agreed and dispensed a bit of advice of their own: ''If the IMF is to draw a lesson from what happened in our country,'' said Chuan, it is ''that it can use its expertise to work with states and prevent crises before they happen . . . It costs a lot more money to treat crises [than prevent them].''

Nonsense, all of it. Thailand has a pretty good chance of sliding into another crisis unless it soon gets a new government willing and able to undertake the reforms the present one will not carry out. On crisis prevention, there is little or nothing the IMF could have done to prevent the Asian crisis from erupting. It's neither in its mandate nor in its capability to forestall or cure the deep macro-economic imbalances that led to it. And as for the notion that it's cheaper to prevent than treat a crisis of the kind East Asia experienced, that's nonsense and then some. It harkens back to Malaysian Prime Minister Mahathir's inanities of blaming it on currency speculators rather than homegrown policy failures and corrupt practices. Attempts to prevent it (and save unsavory systems) cost plenty - the complete loss of Thailand's and Korea's foreign reserves just for starters. And unless East Asia faces up to the fact that the crisis, given the policies and business practices of the decade preceding it, was inevitable and had best be viewed as salutary and an opportunity for in-depth reform, there will be an early recurrence. Sweet-talking Horst Koehler does no one a favor by listening to people (and governments) talking self-serving nonsense.

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