Financial experts criticise IMF over approach to Asian crisis

Jan 12, 1998 01:00 AM

The conventional tight-money requirements enforced by the IMF have come under recent criticism as having adverse effects on the current financial turmoil in Asia. The situation in Asia differs fundamentally from past cases and requires a more flexible approach, according to some financial analysts.
Joseph E. Stiglitz, senior vice president and chief economist of the World Bank, points out that the Asian currency crisis is based on problems within the financial industry, and warns of a potential vicious cycle: tight-money policy chills business, increasing bad loans; in turn this lowers return-on-investment at financial institutions, causing further business stagnation.
Professor Jeffrey Sachs of Harvard University criticises the response of the IMF on the grounds it is difficult to stabilise financial markets when tight-money policy is resulting in a business downturn.
Kunio Saito, director of the Regional Office for Asia and the Pacific of the IMF, responds to such criticism by insisting the goal of higher interest rates is to prevent an outflow of domestic funds and thus stabilise currencies.
The IMF is maintaining a firm stance on monetary policy despite the possibility of popular discontent in countries receiving its support should the assistance policies fail. In the past, the IMF has repeatedly discontinued or reviewed assistance programmes.

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