Opening Statement by Asia and Pacific Department Director Hubert Neiss at a Press Conference on IMF Supported Programs in Indonesia, Korea, and Thailand
January 22, 1999
Bangkok, January 22, 1999
Thank you for joining this conference. As I happen to be in Bangkok at the time when the IMF report on the Asian Crisis is receiving considerable attention in the media, I thought it might be useful to discuss with you, face-to-face, the IMF’s role in dealing with the Asian Crisis; and, together with Mr. Moghadam, answer your questions. If you bear with me for a few minutes, I would first like to start the discussion by making a few comments:
First, the nature of the report. I do not see it either as a "defense" nor as a "confession" by the IMF. The report is in fact a self-assessment. Such internal reviews of IMF policy are nothing new, our Board regularly requests them. What is perhaps new is that this particular review was published quickly and in its entirety. In doing so, we are exercising the transparency that we ask our members to practice. The report reflects internal discussions which are part of the process of policy formulation and policy implementation in the IMF.
This is not a final assessment intended to end all debates, but a contribution to the ongoing debate of what we can learn from the experience of the Asia Crisis. The intent of this debate should be forward looking : How can the IMF and Government be more effective in preventing another crisis. And if another crisis breaks out, how can it be dealt with more effectively?
That "errors" and "misjudgments" were made in forecasting the depth of the recession and in policy implementation should not come as a surprise: governments and the IMF are human institutions. For instance, our projections were not at the time much different from many of the critics, although some now claim they had known better. I encourage you to go back and examine private and public sector forecasts at the outset of the crisis. Also, the initial policies of the program often needed to be based on imperfect statistical information. This is no excuse for errors, of course, but I believe the issue of "errors" and "misjudgments" has received too much prominence, at the expense of some of the other important findings of the report which I commend to your scrutiny.
First, a look at the periodic letters of intent -- which were all published -- shows that the stance of policy initially adopted was not rigid but evolved in the light of new information to accommodate the change in economic outlook. Look, for instance, at the evolution of interest rate policy and of fiscal policy, which were changed continuously in light of the exchange market stabilization and the deepening of the recession.
Second, the policy course followed presently by the crisis countries is not challenged by any serious critics. The controversies mostly relate to the beginning stage of the crisis.
Third, despite several imperfections, the basic strategy of the IMF supported programs is sound, it is working; and it is showing results.
This basic strategy has three elements:
- first, to tighten macroeconomic policies in the initial stage in order to stop depreciation, capital flight, and inflation;
- second, as soon as market stabilization was achieved, to shift to expansionary macroeconomic policies in order to counter the recession;
- third to tackle structural problems right from the start -- in particular the rehabilitation of a damaged financial sector -- to help restore confidence and create the conditions for a durable recovery.
The strategy has some additional features:
- the provision of foreign financing -- through official financing packages arranged by the IMF and through rescheduling of private external debt supported by the IMF -- in order to ease the burden of needed BOP adjustment. In this sense the IMF has clearly made the situation easier, and not worse.
- the absence of unilateral default, which would have been highly disruptive, not only for the defaulting countries but also for its neighbors
- the maintenance of open trade and capital markets which are important for the normalization of growth over the medium term.
The strategy has succeeded in its first objective, the restoration of financial and BOP stability. Looking at the relevant data (exchange rates, reserves, current account, prices) clearly confirms this. On the second objective -- the resumption of growth -- the jury is still out, but recent developments indicate that the output drop has moderated and that the economies will turn around during the course of 1999. Let’s not forget that volatile international financial markets and depressed activity in the region -- including Japan -make recovery more difficult, and we have to moderate our expectations.
In conclusion, let me make a few observations on Thailand:
- First the fact that some program projections were over-optimistic and some policies were not calibrated precisely in the initial phase does not invalidate the overall strategy followed by Thailand.
- Second, this strategy has been consistently and successfully pursued by the present government and has already shown impressive results. A continuous and active dialogue with the government has also helped in continuously enhancing the design and effectiveness of the program in Thailand. Just compare the economic situation today with that a year ago. The IMF, in turn , has made all financial disbursements as scheduled, together with the other participants in the financing package.
- Third, we should not get overly excited if some elements of the program are not implemented as smoothly as theoretically desirable. This is the result of the unavoidable consequence of the political process in a democratic country like Thailand.
- Fourth, let me again emphasize that the present strategy pursued by the present government, focusing on macroeconomic expansion plus banking and corporate restructuring, is regarded as appropriate also by most outside observers and faces no serious criticism.
Finally, while the programs supported by the IMF are not perfect, they will help Asian countries to emerge from this crisis stronger than before and also fitter for the competitive global environment of the 21st century:
- their economies will be more market oriented and more transparent
- their financial institutions will be stronger and better regulated
- their enterprises will be more competitive
- their social safety nets will be substantially improved
Together with changes in the international financial system, these economies will also be more resistant to future shocks and crisis.