Resolve towards reform wins praises
MICHEL Camdessus, managing director of the International Monetary Fund, yesterday praised Thailand's determination to proceed with a strong programme to restructure its financial institutions.
This follows the Thai government's plan to place 58 ailing finance companies under the supervision of a so-called Financial Restructure Agency, an independent body that would focus on cleaning up the problems in the financial sector. The agency will be created with technical assistance from the World Bank and the IMF.
Camdessus admitted that all the measures that deal with Thailand's financial institutions and macro-economic reforms were difficult to make because while they were questioned politically at times by the Thai people, they are good for the country.
''I appreciate the courage of the Thai finance minister to add to the substance and show the determination to go ahead with a very strong programme to restructure the finance enterprises," he added.
In his closing remarks to the annual World Bank/IMF meeting, Camdessus admitted there would be further reflections on how to limit the speculative pressure on financial markets in the wake of the recent turmoil.
''Having had these meetings here in Asia, we now understand those concerns better," he said. ''Several of you have also come with ideas about how the interactions between governments, markets and international institutions could be made to work more smoothly. We will be reflecting on these ideas over the coming months," he added.
The IMF has been mandated to look at ways to further promote the free flow of capital, hoping to add a new chapter to the Bretton Woods agreement. Capital account liberalisation, which covers capital flows, will be high on its agenda as the governing body of the international monetary system seeks jurisdiction over capital account liberalisation.
Notwithstanding Southeast Asia's upheavals, Camdessus asserted that this region benefits from the productive use of capital inflows in the long term. These events should not cloud that reality, he said.
However, he acknowledged the need for flexibility in the requirement of countries to liberalise their current accounts, given the different states of their economic development.
''I can assure you we have this requirement clearly in mind," he said. ''Many have also pointed to the need to strengthen domestic banking systems and the important role that IMF technical assistance can play in this regard."
James Wolfensohn, president of the World Bank, also pledged to work closely with the IMF in strengthening its work in the financial sector against the backdrop of the regional financial turmoil.
He called for improvements in supervision, regulations, the financial systems, legal systems and regulatory systems, which would involve a lot of hard work.
He urged countries to pay close attention to the health of the financial system. ''If the financial system can go, then the economy can go," he said.
Southeast Asian finance chiefs are seeking to overcome Western objections to their proposal for a regional bailout fund which stole the limelight at the global financial talks this week.
Camdessus said yesterday he was ''waiting to see this debate" go forward in the next few months, adding that agreement on the issue overall ''is much greater than the disagreement."
All countries involved wanted the scheme to be based on IMF conditions and IMF funding, he said, adding, ''I am confident the dust will settle and we will go towards something good that will help avoid future crises."
Regional delegations were satisfied the Japanese-backed initiative remained on the financial agenda, despite receiving an initially cool reception at the annual World Bank-IMF meeting.
''Right now it is in a formulation and discussion stage," Philippine Finance Minister Roberto de Ocampo told AFP, adding that a credible scheme addressing Western and IMF concerns would be stitched together in the coming weeks.
''There was a misunderstanding about there already being a fund in terms of the amount and in terms of modalities. Therefore, there was a less than positive reaction from some Western countries as well as from the IMF," he said.
However, Southeast Asian finance ministers were able to convince the United States and the IMF that the proposal deserved follow-up action, he said.
US Treasury Secretary Robert Rubin will meet the region's ministers at the end of October for a dialogue ahead of the Vancouver summit of the Asia-Pacific Economic Cooperation (Apec) forum in November, de Ocampo said.
Japan and China would also join the dialogue along with Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
The initiative, which came amid turbulence in regional financial markets sparked by Thailand's forced devaluation of the baht on July 2, generated worries about it undermining the IMF's role as the global financial policeman.
''I personally don't see a substantial basis for the individual fund," the World Bank's James Wolfensohn said yesterday, adding the IMF already served the purpose for which the fund has been proposed.
Camdessus cautioned Southeast Asian ministers against setting up any fund ''with a specific deposit of X amount to be managed by some institutional arrangement," de Ocampo said.
Camdessus warned it could create the impression that it would be used ''for intervention purposes and in propping up currencies or as a temptation to circumvent hard decisions that economies in crisis have to make."
BY THANONG KHANTHONG