How is India doing? Is she next to fall?
Quote of the day:"''Whenever your economy is in a crisis, the first thing to remember is not to call the IMF.''
Here is a scathing attack on IMF,the U.S rating agencies etc by a reputable economist.
Source: Economic Times,India.
SATURDAY 10 JANUARY 1998
India safe from Asian crisis; never call IMF, says Sachs
Our New Delhi Bureau
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NEW DELHI 9 JANUARY
INDIA is unlikely to become a victim of the contagion effect now plaguing Southeast Asia, economist Jeffrey Sachs has said.
Addressing a seminar here today, organised by NCAER, Mr Sachs said the Southeast-Asian crisis was unique and ''India was certainly not in the middle of it. India did not have the vulnerabilities of some of the crisis-hit economies.''
He agreed with the Indian strategy of allowing the exchange rate to depreciate gradually. ''One should never defend the nominal exchange-peg in such situations,'' he said. He also conceded that the country had a much better external debt profile as compared with the Southeast-Asian economies.
In his two-hour-long presentation, he took a few digs at international credit rating agencies and the IMF. He said Moody's and other rating agencies had no inkling of the crisis as they continued to give the tigers positive ratings till the currency crisis suddenly erupted. Post-facto, however, these rating agencies started ''recklessly downgrading them''.
Similarly the IMF was holding some of these economies as models of high and sustainable growth till they hit the brick wall. The IMF had predicted South Korea's GDP would grow by 6 per cent but now it appears they will register a negative growth rate.
''Whenever your economy is in a crisis, the first thing to remember is not to call the IMF.''
He disagreed with the current IMF prescription to revive the South Korean and Indonesian economy. ''The IMF has gone and asked for a closure of a number of banks and finance companies in these countries, which is not the right thing to do, especially as these banks provided working capital to the corporate sector.''
He said as a result of closing down the banks, several Korean automobile firms have cut production at a time when their depreciated currency has prepared the ground for an export boom.
''You can't close banks and finance companies in the middle of such a crises. It makes much more sense to recapitalise them so that they continue lending to the industry,'' Mr Sachs said.
In general, Mr Sachs conceded the southeast-Asian crises was totally unanticipated and, ''we are still far from a proper understanding of the events there''.
He maintained that the traditional economic fundamentals of these economies were very strong, and that they are still quite healthy. Some of them had budget surpluses, high forex reserves and moderate inflation when the crisis visited them.
So what then caused them to fall like nine pins? Mr Sachs attributes their fall to what he describes as ''self-fulfilling panic and stampede''. Panic feeds on panic and this may not have any relation to economic fundamentals.
But there is one factor which adds to short-term panic and stampede: that is if the country's short-term debt is more than the central bank's forex reserves then theoretically there can be a run on the reserves.
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