The International Monetary Fund, founded in 1945, is an organization comprised of 184 countries with the goal of fostering and assisting all nations through economic and financial cooperation. This includes providing loans to nations during an economic crisis, maintaining exchange stability, and providing policy advice to various governments. Along with the World Bank, these two organizations are often referred to as the "Bretton Woods" institutions.
The IMF & the Asian Financial Crisis
In July of 1997, the rapidly developing nations of East Asia were slammed with one of the largest financial collapses in recent history. With much of the region pegging currency rates to that of the US dollar, global investment in the area seemed promising. Yet with rising inflation and pumping “bubble economies,�? the economic success story was bound to pop.
Triggered initially by Thailand’s floating of the Baht, the economic crisis shook several rising countries to the core as international investment flew out of the region, only further fueling financial panic. With inadequate investment control mechanisms in place, a severe liquidity crisis ensued, with global investment desperately seeking an escape from the region’s faltering foundation.
The International Monetary Fund developed several relief packages for those most in need, but many scholars and government leaders have severely criticized the rather harsh restrictions placed on these assistance loans. While World Bank officials and the IMF earlier praised the “East Asian Miracle,�? many now saw the work of the agencies in opening and rapidly liberalizing the region as the primary cause of the financial collapse. More significant, the IMF was blasted for the restrictiveness of their bailout packages, which required drastic structural and governance reforms to take place simultaneously with rebuilding.
In their book Thunder from the East, New York Times columnists Nicholas Kristof and Sheryl WuDunn give an in-depth personal perspective of the societal ramifications of the AFC. While the devastation of the crisis cannot be overstated for countries such as Indonesia, both authors reveal that the collapse may be a blessing in disguise for the region, destroying the legitimacy of corrupt leaders and providing a fresh start for rebuilding. While one may view the AFC from the “Washington Consensus�? perspective of corrupt Asian leaders and questionable domestic practices, or that of a failure by the world’s financial institutions, it is important to consider the long-term repercussions such developments may have.
Now, a definite apprehension exists for East Asian nations and the economic institutions that fueled their rise yet broke their foundations. The increasing importance of organizations such as ASEAN+3 may be seen as a response by the region to guide their own financial course. Asian regional cooperation is quickly coalescing, with government organizations and Track II interactions occurring ever more often. Giving rise to a new entrepreneurial spirit, the crisis may have provided just the right economic foundation for the expanding region.
PbWinter 11:35, 21 Jun 2006 (PDT)