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Asia: Bank Group Says Markets Contributed To Crisis

Washington, 8 July 1998 (RFE/RL) -- The global association of commercial financial institutions says private market participants -- banks, lenders and investors -- contributed to the Asian financial crisis and should be part of the solution.

The Institute of International Finance, with more than 290 banks, investment funds, institutional investors and insurance companies comprising its membership, says a study it did showed clearly that "the seeds of the crisis in Asia were not just sown by the countries alone."

The managing director of the institute, Charles Dallara, told a press conference in Washington Tuesday that the private sector was a part of the problem in Asia.

"We are in a different world of inter-connected markets, of exceptionally speedy transmission methods and a world that we do not fully understand," he says. While the Asian governments made many mistakes in their policies leading up to the crisis, the market participants were also guilty of such things as continuing to make loans when the risks were increasing.

Dallara says the institute is putting together a series of working groups in an effort to explore and better understand the role of the private market participants in the Asian crisis and how that information can be used to prevent future financial problems.

Composed of bankers, investors and insurers with specific areas of expertise, the working groups will examine how these financial crises develop and what can be done from the private market perspective to deal with the problems.

The working groups studies will be coordinated by a special steering committee of senior international private bankers and investors, including the president of Poland's Bank Handlowy, Cezary Stypulkowski.

Most importantly, says Dallara, the private association wants to see much greater cooperation with official lenders such as the International Monetary Fund (IMF).

"The only way, if we are to move forward in strengthening the architecture of the financial system and the efficiency of the system, is if the private financial community and the official sector work together," he says.

As the private group addresses it's own culpability and involvement, Dallara says it's important that the IMF adjust its approach to the private sector in dealing with these crises.

"The IMF needs to better grasp the rhythms and moods of market participants," he says. "It needs to move closer to the markets to mitigate crises and head them off."

As part of the effort to improve cooperation between the public and private sectors, the institute conducted a study of the IMF's programs in Asia to see if the criticisms were justified.

The institute's Deputy Managing Director and Chief Economist, William Cline, says the study found that while the fund did make some mistakes -- especially in the early days of the crisis -- overall, it's prescriptions were correct and appropriate. The criticisms have been overdone," he says. The higher interest rates it pushed on those countries were absolutely necessary, says Cline, and the emphasis on structural reforms was correct.

The most serious mistake, says Cline, was that national leaders in Thailand, Indonesia and South Korea balked at the IMF-suggested reforms, delaying implementation and triggering many of the more serious problems which then developed.