IMF threats

[Robert Weissman <rob@essential.org>]

IMF ready to flash the yellow card on Asian reform: Camdessus
Date: Wed May 19 09:21:44 CDT 1999

   TOKYO, May 19 (AFP) - Despite strong reform efforts in Asia, especially
South Korea, the IMF warned Wednesday that the Fund will not hesitate to
flash the yellow card at any sign of weakening resolve.
   IMF managing director Michel Camdessus welcomed a recovery in which most
East Asian economies -- except Indonesia -- are expected to return to more
than half of the exceptional growth they enjoyed before the crisis.
   Moreover, South Korea's economy had improved so much the country may soon
no longer need IMF loans, the International Monetary Fund chief told AFP in
an interview here before heading for Seoul.
   "It is completely possible that tomorrow, or in three months, we would
say (South) Korea no longer needs IMF funding and the programme is just a
precaution," Camdessus said.
   The Fund chief was to meet in Seoul with South Korean President Kim
Dae-Jung and other government leaders. South Korea has been receiving IMF
loans under a programme set up in December 1997.
   Camdessus noted the difference between financing and the structural
reforms required by the programme.
   "The fact that they (the Koreans) are not asking us for funding does not
exempt them from taking steps which are in their own interest," he said.
   The IMF head warned that if the improvement in the economic situation
deprived the Fund of the "absolute power" it had exercised through financial
help, he still reserved the right to show the "yellow card" with market
warnings.
   "We will show it whenever needed. Showing the yellow card is essentially
just that. The signals we give to a country, those are the signals we give
to the market. And countries know very well that the recovery in their
credit standing is fragile and they cannot allow open warfare with the IMF."
   Nevertheless, the IMF realises it must "look twice before giving a signal
which risks being misinterpreted and putting into question the restoration
of external credit for these countries, which is obviously an important
achievement."
   "We are a bit empty-handed," he said, "but people identify with these
(restructuring) programs and they are responsible enough to understand that
reforms which are not fully carried out could well fail to produce the
expected results."
   Camdessus said the pace of structural reform in Asia "has been slower
than we would have hoped."
   "We have been able to go faster in financial sector reform, although not
fast enough in my view," he said.
   "The task was more difficult than we thought," Camdessus said. Reforms
included setting up "proper bankruptcy legsislation, people capable of
administering it, new teams to handle (non performing investments)."
   "All that took time and money."
   Despite the problems, he said, in Thailand, South Korea and even in
Indonesia, "the financial restructuring program is going to work as it
should."
   At the corporate industry level "it is more difficult and more
complicated" because of the lack of levers available to governments and the
international community.
   "All we can do is set up the right climate to create incentives to
restructure," by clamping down on monopolies, cross-guarantees and various
protective elements.
   But "that will take time, especially because the interests in question
are enmeshed, as in Korea, with the structure of the economy," the IMF chief
told AFP.
   "Nevertheless, I think this is so central to the restructuring of the
Korean economy that the government will press ahead." The goal of his Seoul
trip was to support the "absolute determination" of President Kim.
   The IMF head admitted that structural reforms have had a dampening effect
on economies in the short term.
   "This is what we see in Japan where the effect on unemployment and
household income, on top of the recession, is building into a strong
argument for doing nothing," he said.
   But in Japan, as in South Korea and Thailand, "governments understand
they must head in this direction and they are ready to pay the short time
price of restructuring because the future of their economies is at stake."