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Scarce resources hurt rescue


PARIS -- The crisis in Asia is not being contained because of the limited resources of the International Monetary Fund and the absence of a second line of defence in the form of bilateral intervention to assist the affected countries, the chief of the Bank of France's International Monetary Policy says.

Gerard Kemer said the IMF, which has put together a US$100 billion rescue package for South Korea, Thailand and Indonesia, has been left alone to tackle the crisis, which is much more complicated to resolve than the public sector debt crisis it dealt with in the case of Mexico and Latin America.

''The problem is that the IMF has become the only lead organisation to handle the crisis. So when the crisis in Asia spreads, it rapidly faces scarce resources,'' he said. ''It would be wise to let work the second-line of defence or the bilateral intervention, for instance, from the G-7 or G-10.''

The IMF last August approved US$17.2 billion in rescue funds for Thailand. Despite that the financial markets quickly lost confidence in the baht after it was found out that Thailand's short-term foreign debts of more than US$40 billion far exceeded its ability to service them when net foreign exchange reserves of US$2.8 billion as of June 1997 and the US$17.2 billion package were combined. This led to a rout on the baht, which hit rock bottom at Bt56 to the dollar in January.

Kemer said the debt crisis in the early 1980s was more appropriately handled because the Paris Club first stepped in to play the roll before the IMF followed in the second line of defence. ''Now the situation is reversed. The IMF gets in first before it tries to come up with the money later,'' he said.

South Korea is the only country to get the second-line of defence support from the United States due to special bilateral and security relations, although the special US assistance has not yet been used. The US also played an important behind-the-scenes role in helping Korea to roll over its debts. But it also shot down efforts by Asian countries to set up a US$100 billion bail-out fund as a supplement or an alternative to the IMF.

The crisis in Asia has raised two important questions about the stability of the financial system and the architecture of the financial system, said Kemer. In the stability of the financial system, it is clear that financial crises are not restricted to emerging markets but can happen anywhere such as Latin America, Mexico, Sweden or the United States with the failures of the savings and loans industry.

''What is new in Asia is that for the first time, the adjustment programme is designed solely by the IMF,'' Kemer added. In Mexico in 1992-1993, the IMF did not play an important role in its adjustment programme because the US acted as a big brother to bail out its southern neighbour. Moreover, it was relatively more handy for the IMF to design programmes for Latin America or Mexico because the crisis incurred from the public sector debts -- not the private sector debts.

The crisis in Asia is caused not only by a mismatching of cash-flow incurred by private sector debt but also by the banking crisis, an area that the IMF has had little experience to deal with. Kemer said the IMF has augmented its role, agreed by the G-7 or the G-10, by putting in place necessary policy reforms in the adjustment programme for the countries receiving its bail-out.

The IMF did not see sufficiently what was going on in the early part of the crisis in Asia, and governments were also slow to react or to take the necessary course of action to prevent the crisis from getting out of control. So when the crisis broke out, any packages, big or small, appeared not to work.




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