`Criticism of IMF Role Improper'

Article excerpt

A renewed sense of optimism has descended upon Korea and many other Asian countries in recent weeks.

There are new signs that economic growth is gaining momentum.

Investment capital is again flooding into the region, and consumers are once more beginning to spend their money.

Although it will take time to determine the true strength of this rebound, there is no question that the current turn of events is most welcome.

But even as Asian countries emerge from crisis with earlier and stronger-than-expected recoveries, we are seeing a new line of attack by the critics of the IMF's role in Asia.

Until only a few months ago, IMF-supported programs in Korea, Thailand, and Indonesia were blamed for undermining these economies and plunging the countries into long-term depressions.

Now, however, as evidence mounts of more favorable prospects, the critics are fast changing their positions.

They explain that the crisis countries are indeed recovering, but this is despite the policies that were implemented under the IMF-supported programs.

In Korea, we now hear the argument that the turnaround has occurred primarily because of favorable international factors rather than the IMF-supported program, which is characterized as the same old (inappropriate) medicine.

The critics' interpretation of Korea's recovery is that it can be mainly attributed to three events in 1998, the short-term debt rescheduling agreement, the rebuilding of the country's foreign-exchange reserves, and the global easing of monetary policy after the crisis in Russia and Brazil.

The critics claim that these events were the basis for recovery and that they occurred independently of the IMF-supported program.

A careful look at the facts leads to a very different conclusion and I believe we should give credit where credit is due.

It has been the strong effort of the Korean government to implement -- and obtain political acceptance for -- far-reaching macroeconomic measures and structural reforms that have played the pivotal role in turning around the external situation and setting the stage for economic recovery.

This turnaround came under the IMF-supported program together with large international financial support, which was provided because of program implementation.

I would in particular argue that the debt rescheduling and the rebuilding of reserves would not have occurred in the absence of an IMF-supported program, and that the global easing had very little effect on macro policies as expansionary monetary and fiscal policies were adopted much earlier.

That said, let me consider each element of the critics' argument in turn.

The debt rescheduling agreement reached in early 1998 between Korea's commercial banks and international bank creditors was one element of the international community's strategy to assist Korea in avoiding a default that would have been disastrous for the country, as well as the region. …