An Evaluation of the Emergency Support from the IMF and other International Organizations

No.32
May 1998
Research Fellow Jianmin Jin

1. The first tremors of the Asian Currency Crisis rumbled out of Thailand, and like dominos, the catastrophe spread across most of East Asia, the scope and severity of damage growing as it triggered first a financial crisis, and then a full-scale economic crisis. Specifically, the damage to Thailand, Indonesia and South Korea was particularly severe. In order to prevent this currency/financial/ economic crisis, the various governments in Asia each contributed great efforts, but these independent efforts reached their limits. Eventually, Thailand, Indonesia, and South Korea approached the IMF for assistance and accepted the necessity of creating an international framework of cooperation. This report surveys the emergency public support for the above three countries led by the IMF (Part I) and evaluates the IMF's support (Part II).
2. Part I examines the support and attendant conditionalities of the IMF. Thailand, Indonesia, and South Korea received $3.9 billion, $10.1 billion, and $21 billion, respectively, from the IMF, while the World Bank and other international financial organizations, and related national governments, provided a total of $17.2 billion, $33 billion, and $57 billion to the respective countries in public financial support. In so doing, the IMF combined loan conditionalities, a plan that had proved effective in solving Latin America's financial crisis, with economic structure adjustment policies for transitional market support that had been provided to the former Soviet Union states, and called for financial conditionalities from the three countries. Despite the fact that, from a financial support perspective, the World Bank, Asian Development Bank, and support-providing countries' contributions surpassed those of the IMF, whether or not that support would be invoked was the IMF's decision. Thailand and South Korea were already in compliance with the IMF's conditions, but Indonesia remains ambiguous.
3. The IMF's "endorsement" function has considerable influence on overcoming the Asian Currency Crisis and on future economic growth, and thus Part II investigates the appropriateness of the conditionalities imposed on the three countries. With the realization of the IMF's foremost goal of "Mid Term Sustainability of External Balance of Payments" as a premise, this report examines the IMF's efforts toward tight financing policies, excessive financial restraints, and the improvement of weak financial institutions and economic structure. Lastly, this report raises questions and improvement strategies for the following issues: (1) the rigidity of tight financing-policy methods, (2) high-interest policies that result in crises of national debt, (3) contradictions in austerity measures and the early achievement of financial reconstruction, and (4) unbalanced liberalization policies.

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