"Asia and the IMF"

September 19, 1997

Seminar Schedule

Session 2. The Changing Emphasis of the Fund: Implications
for Stabilization and Growth Policies

Discussant: Ms. Hashbat Hulan

Thank you very much, Mr. Chairman.

First of all, I would like to thank the International Monetary Fund's management for inviting me to participate in this meeting. It is the first time that I will be addressing such a distinguished assembly of financiers, bankers, and economists.

Just to give you a brief insight into my background, I chair a standing committee on social policy in the Mongolian parliament, and my responsibility covers such areas as education, health, unemployment, labor relations, pensions and benefits, and policies regarding different social groups such as children, youth, the elderly, and invalids. I also carry responsibility for legislation regarding culture, the arts, and sports. These are the areas that fall into the very sensitive sector that is covered by structural programs and they are the areas that suffer most when it comes to the need to reduce deficits and to look into the way budgetary expenditures are handled.

I think my participation in this panel has to do with the need to explain the type of political environment in which structural adjustment programs are being implemented in countries like Mongolia.

It is quite true, as Mr. Mussa and Mr. Boorman have noted, that we do indeed live in very interesting times, and it is important for us to see that the number of those blessed by these interesting times is more than the number of those who are being cursed by them.

I would like to draw your attention to the fact that the International Monetary Fund is now facing a truly historic challenge, and that challenge deals with the fact that, within the last decade, the number of countries that have asked the IMF for assistance has dramatically increased, and the countries that have come up for assistance operate in a very specific environment. I am talking about the postsocialist or the postcommunist countries.

Mongolia presents a very specific case in Asia. It is the only country that is now trying to simultaneously effect the transition to capitalism and the transition to democracy. This is being done in Eastern and Central Europe and in Russia, but Mongolia is the only case of such a transition in Asia. My purpose today is to give you an idea of what type of constraints and pressures we are dealing with when we talk about this transition.

The postcommunist countries--all of us--and I have included in this group Eastern and Central European countries, the former republics of the Soviet Union, and Mongolia--are undergoing a major experiment in history. No other countries in world history have been asked to conduct a transition to capitalism--that is, creation of market economy institutions, creation of private property institutions, and protection of private property--and, simultaneously, a transition to democracy, which involves creation of institutions that protect political liberties, institutions of regular and transparent elections, and institutions that protect human rights in their universality.

This is the type of situation that Mongolia is dealing with, and the type of environment that the IMF is dealing with, when it comes to postsocialist and postcommunist countries.

The problem with the postsocialist case is also that, apart from the pressures of political liberalization, apart from the pressures coming from different groups for more entitlements, apart from the pressures to create viable social safety nets in the conditions of structural adjustment, we come across a lot of problems related to expectations--expectations and previous experience of the people as they relate to the current economic condition.

You may remember the early nineties, when postcommunist countries shed their political systems and turned to the very difficult task of meticulous institution building. This is when we found out that capitalism--market economy, as we call it, which is a euphemism for capitalism--does not necessarily legitimate democracy. And we have come to the point when market economy transition has created a lot of constraints for democracy, and democratic demands of the population have created massive problems for a comprehensive, committed implementation of structural adjustment programs.

Now, the expectations. In all of the postcommunist and postsocialist countries, there is an instant-gratification syndrome that is creating constraints for people like me when we have to take very tough, very conservative economic measures.

Another problem that we have has to do with the social psychology. Over the years of centrally planned socialist economy, these countries created massive social sectors, and restructuring these sectors is a huge political problem. And when it comes to the debates on annual budgets, when it comes to discussions with the IMF as to how we can alleviate the fiscal burden, we face a population that clamors for more benefits or at least the maintenance of the old social policies.

Another social psychology issue that works as a constraint is egalitarianism, and the commitment to equality as a very important social value. When people vote, they want the politicians--well, I talk about my country and the postsocialist countries--to address the issue of equality and income distribution. They want politicians to address issues of social justice. But when the politicians discuss economic measures to put the economy right, it is very difficult to balance the pressures for more equality, equalized income distribution with the structural measures that need to be taken as far as the budgets, the tax policies, and the social sector reforms are concerned.

Another point that I wanted to bring into this discussion is related to the way the discussion went under the previous panel. I am here today to comment on the papers presented by Mr. Tanzi and Mr. Boorman, and I fully agree with their emphasis on the need for the International Monetary Fund to increase its flexibility when it comes to structural adjustment programs, to increase its sensitivity to the social sector policies, and to increase the social sector component in the structural adjustment programs that the Fund implements in different countries.

I fully agree with these two speakers. However, I noticed in the speech of the "chief shoemaker," the chief counselor of the IMF, Mr. Mussa, the repetition of the maxim that--well, it is not exactly one-size-fits-all--but if the shoe fits, then wear it.

I studied in Russia in the 1980s, and there used to be a great inventor of jokes and anecdotes. One of his best jokes--a very naturalistic one, and I am very sorry for having to quote a very naturalistic anecdote--was: "If my mouth smells bad, it's your problem. Just step aside."

So what Mr. Mussa is saying is that if my shoe size does not fit your feet, it's your problem--just step aside. I don't think this is a very constructive attitude, especially when we are talking about a sick patient. The patient is having so much pain that adding to the pain is an inhumane act on the part of the doctor. Again, because of the time limitations, I would like to reiterate the theme that I tried to bring into this discussion--the fact that postsocialist countries are facing a challenge that nobody else in history has ever had. And in order to successfully meet that challenge, we need to work together on sensitive programs that meet the needs of the political process.

Thank you.