IMF credits self for swifter crisis response
The International Monetary Fund said on Sunday that large financing packages, more flexible policy advice, and fewer conditions in its loans to emerging-market countries have helped avoid catastrophic damage to their economies during the current financial crisis, according to Reuters.
In an internal review of its lending to 15 emerging economies since the global financial upheaval began last year -- most of them in Eastern and Central Europe -- the IMF said its responses have not caused sharp spikes in interest and exchange rates, and runs on banks.
One reason for this was swifter disbursement of IMF funds to sectors hardest hit by the crisis and an emphasis by the fund on protecting the financial sector from the global credit squeeze.
The review looked at IMF programs in countries such as Hungary, Iceland, Ukraine, Latvia, Romania, Serbia, Belarus, Bosnia, Georgia and also to Costa Rica, El Salvador and Guatemala and concluded they have been successful.
"What this study tells us is that, with IMF support, many of the severe disruptions characteristic of past crises have so far either been avoided or sharply reduced," said IMF Managing Director Dominique Strauss-Kahn.
He added: "Serious challenges remain, especially restoring sustained growth in output and employment, but there are encouraging signs of stabilization."
The IMF said its response to the current crisis demonstrated that it has learned from past mistakes. The IMF`s reputation has suffered because it forced bitter fiscal and monetary reforms on hard-hit countries during the 1997-99 emerging-markets crisis.
Many Asian countries were urged to build huge foreign exchange reserves in those years to try to ensure that they would not need the fund`s help again, but now find themselves criticized for not encouraging more domestic consumption.
Reza Moghadam, director of the IMF`s policy and review department, said this crisis has been different from others because it began in the United States and affected more countries.
He cautioned that the crisis is not over, so it is hard to fully assess the IMF`s actions since fiscal and monetary stimulus must still be unwound and bank balance sheets have yet to be brought into a healthy state.
But Moghadam said the IMF internal review not only shows that the fund recognized past errors but also that it has adapted by better tailoring its policy advice to countries` circumstances.
In countries like Latvia and Ukraine, for example, the IMF let deficits rise as revenues declined in vases where domestic and external financing was unavailable, then allowed its own resources to go directly to government budgets.
As well, the IMF acknowledged the wisdom of countries that avoided abrupt monetary policy tightening which might have caused spikes in interest and exchange rates. Such actions were especially helpful in countries where borrowing was mostly in foreign currency.
The IMF report said it was "remarkable" that countries receiving IMF help had generally managed to avoid banking crises, especially since many central and Eastern Europe banking systems entered the crisis after an externally financed credit boom.
It concluded that stronger financial sector regulation, avoiding currency and interest rate overshooting and swiftly pumping liquidity into the system had helped banking sectors.
The Fund said in all of its programs so far it had ensured that any spending cuts did not affect social programs such as for health and education.