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Western Press Review: Embers of World Economic Housefire Still Glowing

  • Don Hill

Prague, 23 December 1997 (RFE/RL) -- Western press commentary today inspects the world financial crisis of the last few months, and finds dangerous sparks still among the ashes.

FINANCIAL TIMES: The IMF is criticized.

The British financial daily Financial Times says today in an editorial that the IMF's financial firefighting hasn't yet proved it can cool the problem.

The newspaper says: "The International Monetary Fund has become the world's economic fireman. Its job is to squirt money and conditionality on financial blazes. In carrying out its job, the IMF reflects the technocratic approach of the finance ministries and central banks that govern it. But its power has bred protests, not just from borrowers, but also from respected professional economists. The question is how far these are justified. The criticisms of the IMF can be divided into three parts: grand strategy; methods of operation; and conditionality."

The editorial concludes: "The IMF has not restored confidence, probably because high interest rates aggravate the underlying illness. It would be bold to argue that the IMF has no raison d'rtre, and risky to replace it with a number of separate bodies scattered around the world. But it is reasonable to insist on openness about its programs and external review of their underlying assumptions. The IMF is powerful. Its programs in Asia are not yet working. If they fail, the Fund will have much to explain."

NEW YORK TIMES: Japan at the heart of the problem.

Responsibility also rests with Japan's domestic financial management, The New York Times says today in an editorial.

It says: "Whether the financial turmoil in East Asia remains a regional problem or spreads across the world depends in no small measure on Japan. So far, Japan has barely been able to maintain its own balance. Instead of bold steps to deregulate financial institutions and disclose the extent of Japanese problems, Tokyo's bureaucrats have employed half-measures. Japan must set an example of reform, otherwise the rot in financial institutions throughout the area is not likely to be excised."

The newspaper notes: "Last week plunging Japanese stock prices and declines in the value of the yen forced Prime Minister Ryutaro Hashimoto to stimulate the economy. Though opposed by the Finance Ministry, it was a welcome but inadequate step," and says: "Japan has repeatedly rebuffed American suggestions for government action to spur domestic economic growth."

The editorial adds: "Part of the problem is that the Hashimoto package was barely enough to offset the budget cuts and tax hikes that the Finance Ministry foolishly rammed through Parliament earlier this year."

It concludes: "As for the weak Japanese banks, they could face more blows at the end of March, when tough new standards on capital requirements and disclosure go into effect. Rather than shrink from the prospect, Hashimoto should demand that Japan acknowledge and address its problems. Doing so would speed Japan's own recovery and set the right example for Asia."

THE DAILY TELEGRAPH: Who is responsible?

Wherever the responsibility lies, something isn't yet working, The Daily Telegraph of London editorializes today.

It says: "The risk of global turmoil has increased appreciably with the failure of the Japanese government's latest emergency." It says: "Compounding the crisis, the IMF bailout for South Korea has run into serious difficulties."

The editorial warns: "If the global powers and the IMF persist in seeing the crisis as a local Asian affair, and if they fail to make quick and substantive changes in macroeconomic policy, there is a risk that the contagion will spread to the rest of us."

LOS ANGELES TIMES: Take into account cultural differences.

The president of the California-based Japan Policy Research Institute comments today in the Los Angeles Times that a central IMF error is its failure to consider adequately the cultural differences of Far Eastern economies.

Commentator Chalmers Johnson writes: "The IMF's arrogant demands that Asian economies such as South Korea, Thailand and Indonesia refashion themselves to look more like the West may backfire in quite spectacular and unexpected ways. In the mid-1980s, the IMF imposed similar conditions on Vietnam, which rapidly became the investment haven of choice for Korean companies making Nike shoes and other apparel that used to be made in South Korea. If the South Korean economy is now forced to contract severely, it is sure to take down with it many of its investments in places such as Indonesia, China and Vietnam."

"If (South Korea's new president-elect, Kim Dae Jung) now succeeds in mobilizing the nationalism of the South Koreans to take only from the IMF what is compatible with Korean culture, he will go down as the best president since Park Chung Hee."

WASHINGTON POST: Don't throw money at the problem.

Washington Post editorial page writer Fred Hiatt writes today that foreign aid, regardless of how generous, doesn't help countries with faulty economic policies.

He writes: "In the contentious world of economists and foreign-aid experts, something remarkable is taking place: agreement. On many key questions that, during the past decade or more, split left from right and shattered a postwar consensus on helping poor countries, there are now answers, based on real data."

Hiatt says: "What do we now know? For one thing, that foreign aid, on average, hasn't worked. As Oxford University economist Paul Collier recently summarized current research, foreign aid on average has not raised growth rates, has not lessened poverty and has not brought about improved economic policies. Huge sums of money, accompanied by endless hectoring, lecturing and setting of conditions, have had, on average, zero impact. That might end the discussion right there, except that behind the average Collier finds something else. Given to governments pursuing bad policies, aid doesn't work - and may even make things worse, some suggest. But where governments are doing the right things, the right kind of aid actually can make a major, positive contribution. Give advice to bad governments, Collier says, but give money only to the good."

He concludes: "The IMF is right to insist on stricter standards of banking supervision, but it should insist just as emphatically on labor rights in Indonesia, job promotion in Thailand, unemployment insurance in South Korea and education everywhere. These aren't just issues of compassion, we now know; they're essential to economic recovery and future growth."

SUDDEUTSCHE ZEITUNG: Germany should be cautious.

In today's Suddeutsche Zeitung, Nikolaus Piper comments that Germany's Bundesbank must tread carefully around the IMF's maneuvers.

Piper says: "The experts were simply too optimistic. It is becoming increasingly obvious that much more happened in Southeast Asia than simply a correction in overblown share and property prices. This cleansing crisis in badly regulated monetary systems has clawed its way into the real economy."

He writes: "The International Monetary Fund has just made downward corrections to the growth prognoses it made only two months ago, notably for Asia itself. Almost overnight, the region that once boomed has become a stagnation zone. The effects for Europe, and Germany in particular, are still on the slight side."

The writer says: "But there is one problem for the Bundesbank. Quite rightly, the IMF is asking central banks in the industrialized world to refrain from raising interest rates for the time being. It wants to stabilize confidence in financial markets and limit the risks of a global panic. The Bundesbank, for its part, on announcing its money supply goals for 1998 last week, adjusted the markets to a somewhat tighter monetary policy."

Piper writes: "But this puts at conflict political reason inside Europe and macroeconomic sense. Let's hope that the Bundesbank is getting the balance right."