Date: Wed, 14 Jan 1998 21:13:07 -0800 (PST)
Subject: IMF blunder
Blunder by IMF deepened Asian economic crisis
By Tom Rhodes in Washington and a correspondent in Jakarta,
in the London Times
15 January 1998
Food queues and riots undermine Suharto
THE International Monetary Fund has admitted that an important part of
its Asian rescue strategy failed, causing a panic among banks that
proved a catalyst for market falls in East Asia.
A confidential IMF report emerged as America announced it was working
with allies to convene a meeting of industrialised nations within two
months to combat the financial crisis in Asia.
The report concluded that Indonesia's economic decline was aggravated
by misjudgment at the IMF's Washington headquarters. Officials assumed
the closure of certain banks last November, particularly those run by
relatives of President Suharto, would inspire confidence. But it
helped to bring Jakarta's banking system to the brink of collapse,
sent investors fleeing from relatively safe institutions and quickened
the decline of the currency, the rupiah.
Disclosures in the report came to light as Michel Camdessus, the IMF's
managing director, arrived in Jakarta yesterday, saying that he
expected to sign "a very solid agreement" with President Suharto. "The
immediate priority is to arrest and turn around the tremendous loss of
confidence and stabilise the market through monetary discipline and
the dramatic acceleration of long overdue stuctural reforms," he said.
Earlier in the day, the 76-year-old Indonesian leader met William
Cohen, the US Defence Secretary, who said Mr Suharto was "determined
to deal with the issues constructively and to move very quickly on
A new deal is necessary because Mr Suharto did not implement measures
agreed last October with the IMF for a $43 billion (£26 billion)
rescue package. For the most part, the IMF report blamed the lack of
reforms by Mr Suharto for the crisis.
But publication of the report could not have come at a worse time for
the IMF, which faces growing criticism in the region over its planned
remedies for the turmoil.
Recommendations on tight budgets, bank closures and high interest
rates have been blamed for worsening the pain when it was claimed that
businesses needed loans to combat mass unemployment and bankruptcy.
The IMF report acknowledged that its demand to close 16 insolvent
banks was counter-productive, concluding: "These closures, far from
improving public confidence ... set off a renewed 'flight to safety' ".
Indonesians had withdrawn $2 billion from the banking system and
shifted further funds from private banks they had assumed would be
next in line for closure. By the end of November, two thirds of all
Indonesia's banks had experienced a run on deposits.
The US House of Representatives banking committee announced yesterday
that Robert Rubin, the Treasury Secretary, Larry Summers, his deputy,
and Alan Greenspan, chairman of the Federal Reserve, would be called
to testify about the crisis at the end of the month.
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