HONG KONG ­ The deputy managing director of the International Monetary Fund (IMF) said if there had been peer pressure against Thailand last year to rectify its macro-economic imbalances, the region would not have faced the crisis it is now painfully experiencing.

Stanley Fischer said that, unlike in Europe, it is not a tradition for countries in this region to warn each other over macro-economic problems, even though they stand a risk of being affected by a policy error of another country.

The IMF, he said, supports a vigilant watch for signs of macro-economic instability to prevent future financial crises rather than an outright attempt to establish a regional bail-out fund, which, if mishandled, might do more harm than good.

US Treasury Secretary Robert Rubin appeared to have softened his stand yesterday during his discussion with Association of Southeast Nation (Asean) counterparts over the possibility of setting up a regional crisis fund, an idea the United States has opposed from the outset.

The fund, which would come to the rescue of countries facing a currency attack, has been gaining support from Japan, Asean and other East Asian countries, but might leave the United States in the cold. The United States suspects that the Malaysia-driven East Asian Economic Caucus ­ a rival to the Asia-Pacific Economic Cooperation ­ is in the making.

Fischer warned against the possibility of creating a moral hazard if the rescue fund is misused without strict conditions. ''On the financing side of this regional fund, we need to be cautious. Access to loans with no conditionalities will be just a mistake," he said.

Thailand is obliged to undergo painful economic adjustments to rectify its large external deficit in return for the IMF-brokered international bail-out fund worth about US$17.2 billion. Fischer is afraid that countries facing an economic crisis might simply ask for more rescue loans without making adequate structural adjustments.

He said the IMF, which has set up a regional office in Tokyo, will be augmenting its surveillance activities, which will help improve its macro-economic policy planning ability and assist it in coordinating policies of countries in the region.

Through surveillance as opposed to a bail-out fund, developing frameworks of policy will take centre stage. Fischer added that the IMF would be concerned if there was an attempt to create an international financial organisation, which might undercut the IMF's present functions.

He said that the IMF detected signs of trouble with Thailand's external deficit and foreign exchange last year and warned Thai authorities to take appropriate measures. If action had been taken sooner, it would have cost a lot less in terms of reserves and the situation would have been less difficult to solve, he added.

On the Thai financial crisis, Fischer said the markets overreacted, although understandably, in the first few months after the crisis broke out, which resulted in a sharp depreciation of the baht.

He and other IMF officials would not comment on what they thought an appropriate level for the baht would be, but said the situation will improve once the markets understand Thailand's economic adjustment measures and its determination to tackle the ailing financial institutions in a comprehensive fashion.

Drawing from the Thai experience, Michel Camdessus, the managing director of the IMF, called for member countries to be aware of the importance of exercising good citizenship when tapping foreign money, instead of the risks of globalisation.

''Indeed, countries cannot compete for the blessings of the global capital markets and refuse their disciplines," Camdessus said. ''Hence, there is the importance of pursuing sound policies that give markets confidence, of respecting the signals they provide and of maintaining transparent and market-friendly policies so that they can do their job."

He said countries need to avoid macro-economic imbalances and must correct them when they arise. He added that countries also need to get their policy priorities right.