Looking Back to the Asian Crisis; lessons for the IMF (original) (raw)

Since its establishment at the end of December 1945, the role of the IMF has changed considerably because of the abandonment of the fixed exchange rate system, but also because of the rise of financial globalisation, which has profoundly the way that the institution was supposed to administer (Kirrane 1995). In addition, these countries today have little need of any financial support from the IMF as they can easily rely on international capital markets. The activity of the Fund has therefore shifted both sectorially and geographically. It has increased its supervisory role; at the same time, the focus of its interventions has gradually shifted to developing countries and economies in transition. In fact, the IMF is in a sense condemned to focus on the countries it can influence through the conditions attached to the loans it grants (Padoa-Schioppa and Saccomanni 1994). On the occasion of the IMF's 50th anniversary in 1994, the Director General, Michel Camdessus, stated that the institution was adapting to changing circumstances without renouncing its original mandate. Thus, although it is true that surveillance, which was part of the original mandate of the Fund, is still its main area of action after having taken precedence over the objective of exchange stabilisation from 1976, 1 it remains to question the effectiveness of these interventions during the Asian crisis. During the summer of 1997, East Asia was plagued by financial difficulties (banking crises, foreign exchange crises, etc.). The crisis erupted in early July with the decision of the Thai authorities, under the pressure of repeated speculative attacks since the beginning of the year, to float the baht, then their appeal to the IMF. The appreciation of the dollar against the yen and the main European currencies was the detonator of the crisis. Indeed, this persistent appreciation since the summer of 1995 rendered the policy of anchoring the Thai currency to the dollar more and more unsustainable, aggravating the difficulties already experienced by the country, in 1 In 1976, the IMF's statutes were amended for the second time. The Fund is then responsible for promoting a stable exchange rate system and no longer defending a system of stable exchange rates (fixed but adjustable). The IMF Fund is now focused on crisis prevention and management, particularly in developing and transition countries. While confirming that the IMF as a centerpiece of the international financial system, the Asian crisis tends to demonstrate the limits, or excesses, of its action. A redefinition of its role and mandate seems necessary.