Conclusion

The paper has examined the IMF's recent crisis management programs in Europe to see how it applied the lessons of Asia over 10 years ago. I have observed that, compared to the Asian programs of 1997, the European programs of 2008 were somewhat better funded and that their structural conditionality was more focused. Other than these, the overall thrust of the programs was similar: fiscal and monetary tightening, coupled with banking reforms. To the extent that currency crises share common causes and consequences, this is not surprising.

Instead, the paper has argued that the difference was more about philosophy than about content. In particular, relative to the Asian programs, the European programs were characterized by more emphasis on ownership, greater coordination among stakeholders, more realistic assumptions and greater transparency about the risks and the logic of policy actions and more built-in flexibility of targets and policy options. It was in the approach to crisis management that the IMF applied the lessons of Asia. This approach, foreshadowing the March 2009 reform of conditionality, reflected the quiet changes that had been incorporated over the past decade in the IMF's conditionality policies and the associated procedures.

The success of crisis management programs, far more than conventional adjustment programs, requires the restoration of investor confidence. Attempts were thus made to enhance credibility and prevent surprise to the market, including by being realistic about assumptions, forthright about risks, and flexible about targets and policy options. Country ownership of policy measures was emphasized to affirm national authorities' commitment; collaboration among various stakeholders, with the IMF serving as coordinator, gave credence to the amount of official financing. When policy measures were of the type that could cause controversy, the rationale was fully explained. For the most part, these philosophies appear to be shared by all recent IMF programs, including those approved after the March 2009 reform (IMF 2009b).

To be sure, there can be alternative explanations of the distinguishing features of the recent European programs. For example, the differences articulated above between the Asian and the European programs could reflect: (i) the perception that the European countries were innocent victims of an unprecedented global crisis, (ii) the recognition of a much more unfavorable external environment for the European countries going forward, (iii) the IMF's desperate desire to attract clients for its lending programs, and (iv) outright favoritism shown by the senior officials of the institution towards the European countries. There may well be an element of truth in some, if not all, of these additional explanations. The point of the paper is that, irrespective of whether there are additional factors at play, the features of the 2008 European programs were consistent with the changes introduced in the IMF's policies and procedures over the past decade, namely, the lessons of Asia.

It is still premature to make a firm judgment on the effectiveness of the IMF's new crisis management strategy. With negative economic growth forecast over the short term, the implicit objective of the programs appears to be that of moderating the inevitable adjustment process, which inherently makes it difficult to evaluate success or failure.²⁶ If exchange rate stability in any way reflects the restoration of investor confidence, however, the European programs of 2008 may be said to have achieved some measure of initial success. While the exchange rates of the three crisis Asian countries continued to fall after the programs with the IMF had been agreed (Figure 1 [ PDF 88.5KB | 1 page ]), the exchange rates of the four crisis European countries remained much more stable following the conclusion of the IMF programs (Figure 2 [ PDF 88.8KB | 1 page ]).²⁷ Capital and exchange controls might have contributed to this outcome in some cases, but it is well to remember that such measures are now part of the IMF's strategy that is both realistic and flexible.

Applying a lesson learned a while ago to a problem at hand is the implicit admission of a past error, but it is not the same as apology. Perhaps the discerning officials of finance ministries and central banks can see a repentant IMF and its new way of doing business, now loudly codified in the conditionality reform of March 2009. Does the Asian public know? Have they forgiven the IMF? The recent decisions of the Republic of Korea to approach the US, People's Republic of China (PRC), and Japan for currency swap arrangements and of Indonesia to secure standby credit from a group of multilateral and bilateral donors prove that the problems of the past are not easily forgotten.²⁸ This is a reminder that going to the IMF for financial assistance is still politically not acceptable for several Asian countries.

This is a curious state of affairs—the IMF has learned lessons from Asia and is applying them to benefit other regions of the world, but Asia wants to have little to do with the innovations that came to light recently. Asia should now learn a lesson from Europe: it was the regional institutions that catalyzed the involvement of the IMF even when the countries themselves were reluctant to approach the IMF. The recent experience of Europe shows that regional institutions, far from being competitors, can in fact be partners with the IMF in complementing resources and expertise. Another lesson of Europe is that no institution, regional or global, has sufficient resources to deal with a large crisis. There is room for everyone in this world, even including bilateral donors.

Asia then might as well continue to strive to build strong and viable regional institutions, especially a structure to multilateralize the Chiang-Mai Initiative with adequate resources. As an entity in which they see greater voice and ownership, the public and their governments would be less reluctant to approach and work with a regional institution in times of need. As part of working out a solution together, the IMF could then be invited to join in the cooperative efforts. Only then can the lessons learned in Asia over 10 years ago be applied back in Asia, to benefit its own people.

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