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To: BillyG who wrote (26949)	12/21/1997 8:22:00 PM
From: John Rieman	Respond to of 50808

IMF didn't predict the fall of SE Asia...................................... scmp.com MondayÿÿDecember 22ÿÿ1997 IMF claims region ignored warning <Picture> SHEEL KOHLI in London The International Monetary Fund yesterday delivered an apparent retort to intense criticism in recent weeks that it had consistently failed to warn in advance of impending economic crises, despite its access to privileged information. Releasing a highly unusual interim World Economic Outlook report focusing almost exclusively on the recent turmoil in Asia, the IMF said that recent reports had repeatedly told how poor macroeconomic policies risked disruptive changes in investor sentiment. It said such warnings had also been "communicated through other channels of IMF surveillance", including the key annual health checks the IMF undertakes on each of its 181 member countries. The IMF admitted, however, that just two to three months ago, "neither economic forecasts nor the pricing of assets in financial markets foretold of the depth and breadth of the economic and financial difficulties that have since engulfed" the region. "It may well be that such developments are inherently non-forecastable, as their occurrence and especially their timing are intimately linked to sudden changes in investor sentiment and financial market conditions," the report said. "But the risks of financial market turbulence not only could have been perceived, they were perceived and with sufficient lead time to have permitted constructive actions to limit if not avoid current difficulties." The IMF noted there was also a danger that some markets in the region could have been lulled into a false sense of security, believing they would be bailed out if financial market conditions turned against investors. This so-called moral hazard had not been prevalent among equity investors, which the IMF said, appeared to have made losses as a result of their own miscalculations, and that similar problems possibly explained the large volumes of non-equity financing, which had been provided on increasingly narrow spreads. "For this form of capital flow, however, there is greater concern with the perceived influence of moral hazard," the IMF report said. "When pressure developed against the continued extension of credits to private enterprises and financial institutions, governments in several emerging market economies undertook to provide various forms of guarantees for these credits. "The expectation that such support might be provided may well have encouraged some foreign creditors to lend larger amounts on more attractive terms and, correspondingly, encouraged domestic investors to undertake greater debt and foreign exchange risk that they reasonably should have." The IMF said governments must dispel any notion that private debts could be alleviated by the public coffers, as this was not only extremely expensive for governments and their economies, but risked national insolvency.