The International Monetary Fundfinds itself front-and-center in dealing with Europe’s debt crisis, urging banks to recapitalize and policymakers to begin to aggressively address the problem. In Asia, however, the Fund finds itself in a completely different role, limited to monitoring and consulting with economies that seem relatively sheltered—at least for now—from the global crisis.
Ho Seng Chee, who worked 11 years at the IMF in Washington, D.C., says the organization was looking for a job when he left in 2008.
“People like to say, well the IMF saved Europe. I see it the other way, it’s kind of like Europe saved the IMF,” says Ho, who’s now a council member of the Singapore Institute of International Affairs. “If they didn’t have the European crisis, they wouldn’t have a job.”
In Asia, the IMF’s job has been quite different, because the region has continued to post strong growth, has a vast surplus of savings, and enjoys big current account surpluses. “That’s a handy buffer to have when things turn worrying,” Frederic Neumann, co-head of Asian economics for HSBC based in Hong Kong, wrote in a recent report.
In its latest World Economic Outlook released this week, the IMF forecast that Asia would grow as much as 8 percent this year, led by China and India. The IMF's biggest worry, though, is inflation.
“Risks for prices are still tilted toward the upside. Emerging and developing economies are more likely to experience second-round effects on wages from past food and energy price hikes, because these account for a larger share of their consumption baskets,” the IMF said in its report.
Not everyone is happy with the organization's warnings about inflation. A senior finance ministry official from an Asian country told CNBC the IMF recently advised the country to increase interest rates and cut spending. “I tell them to be balanced, don’t just focus on inflation,” he said. The official asked to remain anonymous because he wasn’t authorized to speak about private discussions.
Asia isn’t completely immune from another global crisis, however. As the recent selloff in South Korea demonstrated, capital, which has flowed in to Asia in recent years, can just as easily flow out, sending stock markets and currencies tumbling.
The question is whether, even in a crisis, the IMF will find itself playing a key role in Asia. According to a number of current and former policymakers, that’s unlikely given the organization's troubled history in the region.
During the 1998 Asian financial crisis, the IMF bailed out countries such as Thailand, South Korea, and Indonesia. But it imposed tough conditions, including austerity measures and higher interest rates that were criticized for worsening the region’s economic turmoil.
Since then, the IMF has done much to change, reducing conditions on its bailouts and changing how it approaches financial crises. “We have gone through a huge evolution,” says Anoop Singh, who led IMF missions to Indonesia, Malaysia and Thailand between 1997 and 1999, and who is now the director of the Asia Pacific Department at the IMF.
Chalongphob Sussangkarn, a former Thai finance minister, acknowledges the IMF has changed, but adds: “The stigma is so widespread in the region, in East Asia, that even with weak or almost no conditionality, it will be politically risky for a country to (turn) to the IMF again.”
Instead, during short-term crises, Asian central banks are likely to rely on swap lines with the U.S. Federal Reserve. During the 2008 financial crisis, for example, South Korea turned to the Fed to help it tide over a shortage in dollars. But Sussangkarn says relying on the Fed can be dangerous, as the central bank turned down a similar request for help from Indonesia.
In 2010, Asian countries set up the Chiang Mai initiative, which allows the 10 members of the Association of South East Asian Nations, as well as China, Japan and South Korea, to access $120 billion in pooled foreign-exchange reserves.
Some are beginning to question whether the IMF is relevant in Asia. A finance ministry official from an Asian country told CNBC he doesn’t think so. Ho Seng Chee of the Singapore Institute of International Affairs said most Asians see the organization as irrelevant. But in an interconnected world, he pointed out, Asia couldn’t ignore risks such as a debt default in Greece.
“These issues really require an international forum to facilitate discussions and to come up with a joint solution and at the moment there is really no alternative but the IMF as such a forum,” Ho added.
Thailand’s Sussangkarn says the IMF still has a lot of technical know-how, and it’s still the biggest monetary organization.
No one will know for sure how important the IMF will be in the event of another Asian crisis. One IMF official said the proof would be in the pudding, but the best possible thing would be if the organization never had to prove it.