IMF October deals:



A Thai friend commented at the time of the Bear bailout on the contrast (OK, hypocrisy) between a US policy of lowering rates and dishing out $168bn in tax rebates (plus the associated liquidity measures) and the IMF’s conditional bailout policies during the Asian crisis.

At that time, Dr Mahathir Mohamed, no admirer of the IMF (or much west of Malaysia for that matter) described IMF conditions (open local financial markets, raise rates and taxes) thus:

"All these conditions are designed to enable the countries to pay back their debts to foreign banks and institutions so that they will get back their money but the people will suffer," (link)

Thailand itself was resentful in particular at being compelled to open its banking industry - a precondition perceived as a threat to its financial sovereignty. The IMF, of course, was hopeful that foreign entrants would help increase competition and efficient asset allocation.

On this count it is notable that a 2006 discussion paper from the Institute of Developing Economies concluded that, while foreign ownership has increased, competition has decreased. Understandable, then, that the IMF suffers a severe ‘image problem’ in Southeast Asia.

Part of the institution’s solution to this was to rename it infamous “enhanced structural adjustment facility” (ESAF) the “Poverty Reduction and Growth Facility” (PRGF). Behind the name change there were also efforts to address concerns voiced by Dr Mahathir by, for example, increasing lender and borrower collaboration and striving to mitigate the adverse short term effects of ESAFs/PRGFs on the most vulnerable.

The IMF also hired PR outfit Edelman in 1998 to spread the great news and this summer spent $2 million hiring Hill & Knowlton alongside Amo/Euro to handle external communications (of which the most notable of their short tenure might be dealing with coverage of the Director’s randy fraternisations with senior economists).

Did all this (arguably) style over substantive policy change improve the IMF's image – and more pertinently - its legitimacy? Doubtful. The fastest way to commit political suicide in Asia still appears to be praising (much less considering a loan from) the organisation. Ditto Latin America, where, if Argentina (and Brazil to a lesser degree) is anything to go by, early repayments coupled with the verbal abusive hairdryer treatment of the IMF were the political rage in 2005 (and '06 and '07 and '08 etc). The irony from where the Argentinean economy now sits is palpable.

But does it matter today? Need clearly weighs heavier than distaste or pride. Yet on the largest agreement to date in the Ukraine it is striking how little detail on the conditionalities has been so far made public or submitted to the country's parliament who must vote the accord.

Possibly that is mere accident. Ignorance and opacity have been the destructive hallmarks of this crisis to date and it would be mistaken to assume they have a place in the efforts for solution.

Or the future dealings of key international macroeconomic organisations suffering a legitimacy deficit. Circumstance has handed the IMF the chance to prove its inherent worth to its members. Hopefully the organisation will take it.


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