The Tet offensive: A turning point in America's Asian policy

A series of financial crises in emerging market economies during the 1990s have been a catalyst for efforts to strengthen the international financial system. Indeed, much has been done to strengthen the architecture of the international financial system, both in terms of crisis prevention and crisis management. The powerful G‐7 countries have made it clear that the International Monetary Fund (IMF) plays a significant role in shaping the new global financial architecture. However, is the IMF up to the task? This paper argues that despite its many limitations, the IMF is an important institution that can strengthen the global financial system. The paper begins with a discussion of what the IMF is and what it is not This will help put in perspective the nature, mandate, and role of this much‐misunderstood global institution. The second section reviews some of the recent reforms the IMF has introduced to effectively carry out its new function. While these reforms are hardly revolutionary, they nevertheless, will significantly strengthen both the domestic and international financial system. The third section examines the Achilles heel of the IMF—that its policies promote moral hazard. How effectively have the IMF reforms addressed this? It is argued that although the problems associated with moral hazard can never be fully eliminated, the IMF reforms will greatly mitigate the problem. It is very likely that for the foreseeable future, the IMF will continue to serve as an informal international lender of last resort.     

The Controversy of Exchange Rate Devaluation in Sudan: An Economy‐wide General Equilibrium Assessment

Abstract: The International Monetary Fund (IMF) has worked with Sudan since 1997 to implement a managed float exchange rate. The IMF sees exchange rate flexibility as key to safeguard and rebuild foreign exchange reserves and essential to meet the international reserve target in Sudan. However, authorities in Sudan are concerned about the inflationary pressures that exchange rate flexibility may cause. A review of the literature reflects huge ambiguity about the outcome of exchange rate policies in Sudan. This calls for additional empirical investigations. This paper applies a computable general equilibrium (CGE) model to investigate the possible effects of devaluing the currently overvalued Sudanese pound, by simulating a depreciation of the Sudanese pound by 5 per cent, 10 per cent and 15 per cent. Based on the results, the study recommends that additional flexibility of the Sudanese exchange rate regime as suggested by the IMF be carefully considered if such flexibility devalues the Sudanese pound.     

DO INTERNATIONAL MONETARY FUND PROGRAMS IMPACT ON THE SACRIFICE RATIO?

From time to time, the International Monetary Fund (IMF) makes resources available to member states for short‐term balance‐of‐payments support under an agreed arrangement know as a program. Most IMF programs include quantitative performance criteria for key macroeconomic variables, which borrowers must meet to obtain Fund resources. Standard open economy models predict that if policymakers are able to credibly commit to reducing inflation, rational economic agents will lower their expectations of inflation and, therefore, the trade‐off between inflation and output will fall. The present study tests whether IMF programs, by lending credibility to a country's adjustment program, influence the inflation–output trade‐off. The results from the study suggest that IMF programs do not significantly influence the inflation–output trade‐off. This finding is robust to changes in the estimation approach, the method used to obtain the output gap estimates and outliers.     

Canada and the IMF: Trailblazer or Prodigal Son?

Canada played an important role in the establishment of the IMF, yet in 1950 it was also the first major member to abandon the Bretton Woods par-value system in favour of a flexible exchange rate. Canada’s trail-blazing experience demonstrated that a flexible exchange rate can operate in stable and effective manner under a high degree of capital mobility. Equally important, it showed that monetary policy needs to be conducted differently under a flexible exchange rate and capital mobility. In 1962, Canada returned to the Bretton Woods system as a “prodigal son”, after a period of controversial monetary policy. This paper critically analyzes the interaction between Canadian and IMF officials regarding Canada’s exchange rate policy in view of the economic circumstances and the prevailing wisdom at the time. It also examines the impact on IMF research and policy because the Canadian experience influenced the work of Robert Mundell and Marcus Fleming, resulting in the development of the Mundell-Fleming model. Thus, the Canadian floating rate experience not only had important implications for the IMF and the Bretton Woods system, but also for macroeconomic theory and policy in open economies.     

Survey of recent developments

SUMMARY Despite a bomb attack in Jakarta in August, the main financial indicators of macroeconomic health have continued to improve. Inflation is much lower than in 2002, and the exchange rate has remained fairly stable. Public debt as a percentage of GDP continues to fall, and foreign exchange reserves to increase. Deposit and money market interest rates have declined further, although this has yet to translate into significantly lower lending rates. Share prices have also been increasing rapidly, and Moody's recently upgraded Indonesia's credit ratings. The markets responded calmly to the largely political decision to terminate the IMF program at the end of 2003, reassured by a relatively conservative budget for 2004, and by the articulation of a longer-term strategy of balancing the budget by 2005.     

Indonesian economic development: Mirage or miracle?

This paper focuses on a few major developments that took place during the three decades from the late 1960s to the Asian financial crisis. The study finds, in retrospect, that many of the Indonesian economy’s weaknesses—now so glaringly apparent—were there all the time. The paper concludes that the Indonesian banking crisis was primarily domestic in nature, more so than the crises in Korea and Thailand. The extent of the failure was much more widespread and probably resulted from a chain of bank runs and bank closings, reinforced by uncertainty and lack of faith in the government’s commitment to the IMF program and IMF fumbling.     

Does IMF Support Accelerate Inflation Stabilization?

This paper analyzes the effects of International Monetary Fund (IMF) arrangements on the timing of inflation stabilization programs. By providing financial support that may allow the reduction of inflation without incurring politically unacceptable economic costs, the IMF can hasten stabilization. But, since support can also reduce the costs of inflation, it may instead delay it. Empirical results obtained for 10 countries that suffered from chronic inflation fail to support the hypothesis that IMF financial assistance accelerates stabilization. Rather, they indicate that other factors have a greater impact on the timing of stabilizations: greater fragmentation of the political system delays stabilization, while a higher level of inflation hastens it. JEL Classification Numbers: E63, E31, F35     

Toward regional financial and monetary cooperation in East Asia1

The financial and economic crisis in 1997–98 came as a dramatic shock to East Asian economies, and has prompted to institutionalize a regional financial and monetary cooperation. This paper demonstrates the strong will of East Asian countries to develop the regional financial and monetary cooperation, outlines recent developments, and provides possible prospects for the future. It points out that the option to keep consistent with the IMF system actually weakens regional solidarity, and recommends an immediate establishment of a strong regional surveillance and peer pressure mechanism for the Chiang Mai Initiative (CMI) to evolve into a common pool of foreign exchange reserves, a sort of East Asian IMF. It also argues that East Asian countries should closely coordinate their exchange rate regime to maintain intra‐regional and extra‐regional exchange rate stability.     

Does IMF conditionality benefit lenders?

Conclusions The purpose of this paper has been to assess whether official and private lenders benefit from IMF participation in rescheduling sovereign LDC debt via the Paris Club. If IMF participation increases the expected value of any existing or newly rescheduled official or private debt contracts, then lenders benefit. The transmission process can be via the immediate liquidity the IMF provides through various loan facilities, which allows for debt service payments to be met in a timely fashion, and/or through the increased ability of the sovereign to meet future debt service payments due to the conditions attached to IMF liquidity. The results from this paper suggest that the provision of immediate IMF liquidity provides a benefit to lenders but that the attached conditions do not. These results were obtained for a large sample of 84 LDCs over the sample period 1978-1987 and may differ when specific cases are considered. IMF participation reduced the average spread over LIBOR by 155 to 179 basis points, based on a simple model relating interest spreads to default probabilities. Heavily indebted sovereign borrowers may have experienced larger reductions. The design and implementation of IMF conditions has been criticized in the literature because they confer little benefit on the sovereign borrower. Our results support the consensus view that the conditions themselves have little effect. However, our contribution results from seeing the issue from the perspective of rational lenders who expend resources to evaluate IMF conditionality programs.     

Reforming the Corporate Income Tax: The Case for a Hybrid Cash-flow Tax

Summary This paper argues for the adoption of a hybrid cash-flow tax on corporations that, on the one hand, taxes only corporate rents as they accrue, and, on the other hand, treats real and financial transactions neutrally. It is, therefore, a superior tax compared to the conventional corporate income tax – on both economic and administrative grounds. Its design also addresses the usual concerns associated with cash-flow taxation. The base of this hybrid cash-flow tax is the aggregate net cash inflow of combined real and financial transactions excluding capital expenditures, for which conventional depreciation allowances are retained with interest as compensation for the opportunity cost of equity capital. Furthermore, it is argued that it should be implemented on a destination basis that would render transfer pricing and thin capitalization moot. This paper is a revised version of an IMF working paper (WP/06/117) previously circulated under the title “A Superior Hybrid Cash-Flow Tax on Corporations.” The views expressed herein are those of the author; they do not necessarily reflect IMF policy and should not be reported as representing the views of the IMF. Helpful comments from Richard Bird, Isaias Coelho, John Isaac, Michael Keen, Russell Krelove, Alan Macnaughton, Peter Mullins, and two anonymous referees are gratefully acknowledged. Discussions with John Isaac have been particularly valuable. The usual disclaimer applies.     

REFORM OF ECONOMIC LAWS AND ITS EFFECTS ON THE POST‐CRISIS INDONESIAN ECONOMY

This study evaluates the effectiveness of the economic laws some of which were introduced in the IMF‐led post‐crisis reforms to address serious problems faced by the Indonesian economy. It is argued in the study that the economic law reform has not been as effective as expected since the implementation of a law has not conformed with legal policy. The objective of the legal policy of the Bankruptcy Act, which was enacted in accordance with IMF conditionality, was to liquidate insolvent domestic companies and to relieve foreign creditors. At the implementation stage, however, the ruling of the commercial courts was often handed down against creditors. The ineffective implementation was due to several factors; one of them was judges' defensive reaction to possible hostile takeover by foreign creditors.     

Inflation,stabilization and attempted redemocratization in Peru, 1975–1979

This paper discusses the acute stabilization crisis of 1975–1978 and attempts to explain why, for so long, it proved difficult to handle both in economic and in political terms. The role of external creditors, in particular the International Monetary Fund (IMF), is discussed. We examine the response of the entrepreneurial and labour sectors to the policy of the government, and attempt to explain why a coup along Chilean lines would have been very difficult to impose in Peru. Finally we analyse the implications of the recovery of 1979, when suddenly IMF targets were easily fulfilled, but with a proposed return to democracy and not, as in the southern-cone countries, a repressive authoritarianism. The development of 1979 do not qualify the earlier analysis of the unsuitability of abrupt and orthodox stabilization to an economy such as Peru's.     

Dealing with bank system failure: Indonesia, 1997–2003

Indonesia's crisis recovery program has failed badly in relation to the two key objectives of development economics policy making: efficiency and equity. The economy went into severe recession within a few months of the IMF appearing on the scene, and six years later output was little higher than before the crisis. The collapse of the banking system and the associated government bailout of depositors has imposed a loss on the public of at least 40% of GDP. This paper describes that collapse and the government's policy response to it, under advice from the IMF. It goes on to propose an alternative scheme that might have been followed—and that could be followed in future banking crises. Its twin objectives are to maintain the integrity of the payments system and to avoid inequitable wealth transfers that result from government bailouts of banks and their depositors.     

国际货币基金组织的改革动因及目标评述

本文从国际货币基金组织(IMF)的宗旨、职能以及运作机理出发,剖析了IMF职责与权能间的内生冲突,并从IMF的内部控制权问题、最后贷款人角色、对危机的预警和挽救功能、特别提款权的困境与改革以及IMF的监督和磋商机制等五个方面对国际货币基金组织亟需改革的动因和目标进行了较为全面的评述。     

The evolution of the monetary system: Future possibilities

Summary This article discusses in the first place the functioning of floating exchange rates; the tendency to volatility and to unnecessary fluctuations is explained. The conclusion is drawn that the authorities of the main countries should cooperate in exchange rate policies that would bring about a greater stability in exchange rate movements. The article then sketches the historical development which brought us to the present multiple reserve currency system. The functioning of this system is analysed and some suggestions are presented for a more satisfactory management of this system by central banks, possibly along guidelines tobe developed in the IMF. Finally some possibilities are outlined to develop a stabler and better system in the future by creating a more attractive market-oriented SDR-substitution account in the IMF. This article is based on important parts of two speeches which I have given recently: ‘The changing monetary system; evolution and reform’ (20 years' anniversary Central Bank of Malaysia, Feb. 1979) ‘Managing reserves in the 1980s’ (Second International Monetary Conference, Philadelphia, Nov. 1980).     

The causes of the Asian currency crisis: empirical observations

This paper examines statistically and systematically the five causes of the Asian currency crisis exposed by the IMF, using a probit model. The paper shows that the two causes of the IMF are persuasive. The Asian currency crisis tends to occur when the ratio of foreign reserve to total debt is low and the progress of financial deregulation without regularity is great. The paper also shows that the general causes found by previous researches never fit the case of this crisis, but that the trade linkage of each country to the first victim country helps explain the causes of this crisis.     

Small‐family farm types: Examples from Northern Namibia and implications for agrarian reform in South Africa

Small‐farmer types in southern Africa differ significantly in terms of factor‐input patterns and support structures. On peasant family farms (PFF) cash input costs are very low, non‐household labour is sourced largely from communal work groups through kinship ties, and support services needed to sustain production are minimal. By contrast, on commercial family farms (CFF) cash input costs are high, little non‐family labour is used and strong support services are necessary. The first objective of this article is to point out and emphasise the different situations which exist in these two small‐family farm types, based on data from farm studies in Northern Namibia. The second objective is to extract the implications of these differences in relation to development paths under land reform. This is based on experiences of the outcome of land reform in Latin America. It is concluded that the agrarian situation in post‐land reform South Africa will comprise a mix of large‐scale commercial farms and small‐scale farms of both the PFF and CFF types. It will be necessary to recognise the existence of each of these types and their interrelationships, to monitor their development, to understand their different production situations and to cater for their different needs.     

国际货币基金组织份额与投票权改革

国际金融危机凸显出国际货币基金组织(IMF)份额与投票权机制的诸多弊端。在多次G20峰会的推动下,IMF份额改革不断稳步推进。G20首尔峰会正式确认发达国家向新兴市场和发展中国家转移超过6%的份额。这是IMF历史上一次最根本性的治理改革,有着多方面的国际政治经济背景。份额改革使中国坐上了IMF的第三把交椅,带来了新的机遇与挑战。     

Capital-market Liberalization, Globalization, and the IMF

One of the most controversial aspects of globalization is capital-marketliberalization—not so much the liberalization of rulesgoverning foreign direct investment, but those affecting short-termcapital flows, speculative hot capital that can come into andout of a country. In the 1980s and 1990s, the IMF and the USTreasury tried to push capital-market liberalization aroundthe world, encountering enormous opposition, not only from developingcountries, but from economists who were less enamoured of thedoctrines of free and unfettered markets, of market fundamentalism,that were at that time being preached by the international economicinstitutions. The economic crises of the late 1990s and earlyyears of the new millennium, which were partly, or even largely,attributable to capital-market liberalization, reinforced thosereservations. This paper takes as its point of departure a recentIMF paper, to provide insights both into how the IMF could havegone so wrong in its advocacy of capital-market liberalizationand into why capital-market liberalization has so often ledto increased economic instability, not to economic growth.     

IMF份额改革后的人民币汇率主权

2010年11月5日IMF通过了份额改革方案,中国的投票权上升到第三位,占有6.07%份额,中国的话语权得到了增强,但在权利与义务对等条件下,人民币汇率也将成为IMF关注的热点。本文从维护人民币汇率主权出发,首先分析IMF规则对成员国汇率主权的限制,并在国际法框架内论证中国汇率政策的合法性,建议可通过加强多边合作、继续推进IMF改革等途径,争取中国在国际货币政策形成中的话语权,最大限度维护国家利益。