A New Colonialism for Asia?
Something is decidedly different about the International Monetary Fund's (IMF) rescue mission in East Asia.
The IMF has been involved in dozens of financial crises in recent decades. But the degree to which the IMF - which includes 182 member-nations - has dictated economic decisions for such nations as Indonesia and South Korea is new.
Leaders of IMF-rescued nations "effectively lose control of their countries," says David DeRosa, of Yale University's School of Management. "It's almost like they have been conquered - or become a colony of the IMF."
The IMF's Articles of Agreement say it cannot interfere in domestic affairs of a country.
But that has become, increasingly, a legal fiction.
"It is getting pretty close to internal intervention," says Princeton's Peter Kenen, a Princeton University scholar in international monetary affairs.
The trend will likely alarm Americans who see the start of a "world government" in the United Nations and its affiliates, including the IMF and the World Bank.
Here's how the IMF works:
A nation gets into a financial crisis when it is spending excessively on imports or has borrowed too much abroad on a short-term basis. If foreign exporters or financial institutions lose confidence, they'll cut credit and demand their money back.
That makes investors - foreign and domestic - want to leave, often triggering a run on the currency and stock markets and banks.
So the IMF comes to the rescue with loans - $48 billion for Mexico in 1994, more than $100 billion for Asia countries. But the IMF insists on conditions it believes will restore balance to a nation's international payments and restore the confidence of those fleeing with their money.
In past rescues, conditions were relatively simple. A nation would be told to reduce the domestic demand for imports.
The IMF would insist on cutting budget deficits and advise the government on raising taxes and cutting spending. Or it might call for tighter money or changing in the foreign exchange system, despite the almost inevitable recession.
But increasingly, IMF officials not only set the goals but policies to reach them.
The IMF has an apparent concern with "good governance," specifically with reducing corruption. When Kenya needed a loan, the IMF forced President Daniel arap Moi to fire a specific minister.
It often regards military spending for developing countries as a waste. So if a nation seeks IMF help, one condition may be a defense cut.
In Asia, the IMF is trying to reform banking systems and limit cronyism. Ties between Korea's banks and chaebols (huge conglomerates) may be broken. In Indonesia, the IMF may restrain President Suharto's family's extensive enterprises.
The IMF also wants to open up the banking system of these nations to foreign ownership to bolster their financial base - a thrust that rouses suspicion that the IMF is a tool of the United States and other industrial nations.
"I wonder how realistic it is that you can turn a country in crisis completely inside out and upside down," says Mr. DeRosa. He wonders whether the IMF is biting off too much in the way of reforms.
Noting that it took the US three years to tackle its savings-and-loan debacle, Kenen asks: "Can you turn around a whole culture of financial and banking relationships in two years?"
Yet both economists see a need for IMF-enforced changes in Asia. "These countries really messed it up," Kenen says.