EDITORIAL — Is the Asian economic crisis over? — Not yet, says IMF

Michael Camdessus, managing director of the International Monetary Fund (IMF), concedes that his organization’s effort to resolve the Asian economic crisis has generated plenty of skepticism.

Speaking at the National Press Club in Washington, D.C., in early April, Camdessus said some critics believe that the IMF’s programs are “too tough” or “too intrusive” on issues such as governance, monopolies and investment restrictions.

Other critics question whether the IMF’s approach will work at all, particularly in countries known to be suspicious of Western intrusion into their political and economic institutions. Indonesia’s ambivalence towards IMF guidelines is a glaring case in point. President Suharto, the country’s aging leader, has welcomed the financial benefits of IMF intervention, but his spoiled offspring want exemptions from the painful restructuring conditions attached to it.

The IMF admits that making progress in Indonesia will not be easy. Valuable time has been lost, owing to policy slippages (particularly with respect to monetary policy) and other developments. “As a result, the rupiah is now substantially oversold in currency markets, inflation has picked up dangerously, and economic conditions have deteriorated,” Camdessus noted.

The IMF has not given up; it has teams in Jakarta trying to get Indonesia’s reform program back on track. The negotiations cover three broad areas: reformulating the monetary and fiscal programs; strengthening the framework of the financial sector (i.e., bank restructuring and dealing with the external debt of private corporations); and getting on with some of the structural reforms that had been pledged early this year, only to be delayed or reversed. These include eliminating restrictions on foreign investment in wholesale trade and dismantling key cartels and monopolies, some involving members of Suharto’s family.

Camdessus argued that while the Asian crisis is not yet over, progress is being made in some countries. For example, he said market confidence appears to be returning in Thailand and South Korea. Camdessus said the Thai bhat — the devaluation of which triggered the crisis last July — has strengthened by over 40% since January, while the Korean won strengthened by over 30% since its low in mid-December. He also noted that the Thai and Korean stock markets are up 25% and 30%, respectively, since the start of this year, “and in both countries, new foreign direct investment and portfolio investment are beginning to flow back in again.”

The IMF also is seeing more discriminating investors. Capital is returning only to countries where economic problems are being addressed, institutions are more transparent and accountable and the fight against corruption is being intensified.

The strength of Asian markets is of critical concern to major mining companies in both Canada and the United States. Much of the copper, nickel, zinc, coal and precious metals produced domestically find their way to Asian markets. The slump in Asian economies has translated into lower prices for many of these basic commodities, and experts predict that demand will not improve until the Asian Tigers have clawed their way back to economic stability.

While the IMF has a role to play in reviving Asian markets, so does the international investment community. Capital will favor Asian nations that have embarked on ambitious programs that go to the heart of their economic problems. Investors will reward countries making the most progress in changing their domestic business practices, corporate culture and government behavior. Money talks.