Saturday July 21, 2012
IMF seeks to strengthen Asian ties
By CECILIA KOK
THE International Monetary Fund (IMF) does not have many fans – certainly not in Asia, where dissatisfaction towards the international financial institutions dates back to more than a decade ago.
At a recent bond conference in Kuala Lumpur, a senior official of the IMF was put into an uncomfortable position after his presentation of the global financial institution’s economic outlook for 2012/2013.
And because the bond conference took place just days before the official release of IMF’s latest outlook for the global economy – for which, therefore, Ravi was prohibited from revealing any numbers – Lin said participants were only given a “half picture” of what the IMF saw could be happening to the global economy six to 18 months down the road.
Lin, a seasoned economist and formerly Bank Negara’s deputy governor, certainly did not give much face to the IMF representative, slamming the international organisation for not taking the right measure to help solve the eurozone debt crisis.
For one thing, he argued that there had not been enough pressure on member countries of the eurozone to help the region itself, and certainly not enough pressure on Germany to contribute towards global rebalancing. Lin said he thought international organisations such as the IMF had put too much expectation on Asia to do the work of global rebalancing and driving global growth.
When it comes to being on the receiving end of a barrage of criticisms, Ravi’s boss does not have it any better. Thankfully, though, she says, she has “thick skin”.
IMF chief Christine Lagarde visited Thailand recently as part of her Asian tour.
Speaking at a forum in Bangkok last week, Lagarde admitted that she had to face a flood of criticisms over IMF’s handling of the eurozone debt crisis since taking over the job as the managing director of the global financial institution a year ago.
But she said, “It’s okay, I have thick skin. I can take it.”
And history did come back to haunt the IMF too.
Memories of its handling of the 1997/98 Asian financial crisis – during which several affected countries that needed bailout such as South Korea and Indonesia were forced to implement painful structural adjustments without the IMF taking into consideration their specific economic and social conditions – have long been a major source of tension between Asia and the global financial institution.
Asia is now the fastest-growing region in the world. Its growth potential remains intact despite the ongoing global economic uncertainties. The IMF not only recognises this, but it is also keen to be the region’s partner in moving forward.
When Lagarde was in Bangkok, she conceded that the memories of 1997/98 Asian financial crisis, however, could cloud the potential for IMF’s collaboration with Asia.
“We recognise that sometimes we have not listened enough when, in fact, you (Asia) were right. And we know that not all bad memories have completely gone,” she said in a speech.
“But I want you to know that the IMF has learnt – and the IMF has changed,” she added.
Lagarde was trying to drive home the message that the IMF would, from now, open its ears to Asian voices, ideas and solutions.
“Needless to say, a stronger partnership between Asia and IMF will require a stronger role for Asia in the Fund. Given its rise as an economic powerhouse, it is only natural that Asia’s voice in our institution should become increasingly influential,” Lagarde said.
The IMF passed an important package of quota and voice reforms in 2010. Set to take effect by October this year, Asia would by then hold more than 20% of voting the IMF’s voting shares.
Three Asian economies (China, Japan and India) would be among the 10 largest shareholders in the Fund that represents 188 countries, with Japan and China being the second and third largest members respectively, according to Lagarde.
Some critics say such change has been too slow in coming, and it is only reflective of the IMF being a game dominated by the rich and developed nations in the West, and, therefore, prioritises the interest of those nations above the rest.
While the ongoing reforms within the IMF might improve such perception, there are still those who remain sceptical.
Lin, for one, said he doubted that the rejigging of power in the body of IMF could provide emerging economies with sufficient clout to push through the necessary international monetary reforms to put the global economy on a stable path. As it is, he noted that there was still some semblance of reluctance among our American and European counterparts to drive reforms in the global financial system.
According to Lagarde, the prospects of bringing a closure to the global economic crisis were not yet clearly in sight.
“Over the past few months, the outlook has, regrettably, become more worrisome,” she says.
The IMF over the week cut its global growth forecast for 2013 to 3.9% from the 4.1% it projected in April, but left its 2012 forecast unchanged at 3.5%. Gross domestic product (GDP) for advanced economies was projected to grow only 1.4% this year and 1.9% in 2013, while the crisis-hit euro zone was projected to contract 0.3% this year before returning to a growth of 0.7% for 2013.
The IMF was also pessimistic about growth emerging economies, trimming its growth forecast by 0.1 basis points to 5.6% in 2012 and by 0.2 basis points to 5.9% in 2013. The Fund said emerging economies, which had long been a global bright spot, were being dragged down by Europe’s economic turmoil.
So, GDP growth forecast for China for 2012 had also been cut to 8% from 8.2%, and from 8.8% to 8.5% next year. Growth projections for India, on the other hand, had been revised downwards from 6.9% to 6.1% for 2012 and from 7.3% to 6.5% for next year.
For the Asean-5, comprising Malaysia, Indonesia, Thailand, Vietnam and the Philippines, GDP growth forecast for 2012 was maintained at 5.4%, but that for next year had been lowered slightly to 6.1% from 6.2%.
The effects of a deepening crisis in Europe are obvious across Asia. As it is, exports growth have already has lost its momentum, while stock markets have fallen due to reversal of capital, as investors become more risk averse.
On a positive note, Lagarde says that although Asia remains vulnerable to the effects of a deepening crisis in Europe, the region is still set to become the largest economic region in the world over the next two decades. On current trends, she says, Asia’s economy would be larger than that of the Group of Seven (G-7) and would be half the size of G-20 by 2030.
“The centre of the global economy is truly shifting from the West to the East,” she reiterates.
One might wonder, however, after the cool and not-so-favourable treatment by the IMF in the past, and as Asia rises above the rest, what’s in it for the region to strengthen its collaboration with the IMF to ensure stability in the global economy?
For Lagarde, it is simple: “Asia has a growing stake in the global economy – and the global economy has a growing stake in Asia.”