The IMF Replies - A Letter to the Editor

December 30, 1998

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A Letter to the Editor
by Vito Tanzi
Director of the International Monetary Fund’s (IMF’s) Fiscal Affairs Department

The Washington Post
December 30, 1998

The International Monetary Fund welcomes an informed debate on the issues that led to the Asian crisis, but Carol Welch of Friends of the Earth misstates the facts ["Look Closely at the IMF's Record," letters, Dec. 8]. The allegation that the fund supported the Suharto government for six months until the Indonesian public demanded "an end to the IMF-Suharto partnership" is a distortion of the historical record.

One goal of the fund's program in Indonesia was to eliminate the sweetheart business arrangements that distorted the economy and made the former regime so unpopular. The accusation that the fund in Russia dealt "exclusively with a small group of political figures" to "impose" policies by decree ignores the fact that the fund was dealing with the legitimate government of Russia.

Ms. Welch's charge that IMF-supported programs have sent Asian countries into a "destructive tailspin" that caused a sharp increase in poverty fails to recognize both the complex confluence of events that undermined Asia's economies and the progress that has been made in stabilizing the region. Still, the fund is deeply aware of the suffering that has followed the crisis, and spending on social safety net programs has been increased significantly.

In Indonesia, those programs account for 6.4 percent of gross domestic product in the current fiscal year, and that is in addition to the usual spending on education and health. Programs include targeted subsidies on food, electricity, medicine and other items. The rice subsidy, which sets prices at one-third the market price for a monthly ration of 20 kilograms of rice, reached 5.6 million households (about 25 million people) by the end of October, and the government plans to expand the program to reach several million more needy families by early 1999.

Ms. Welch also suggests that IMF policies have been an environmental disaster because they encourage the destruction of Indonesian rain forests. The allegation is patently untrue. The Indonesian government's letters of intent with the fund have from the beginning of the program consistently included commitments aimed at protecting the environment, including the area of forestry.