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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Frodo Baxter who wrote (5851)	8/24/1998 9:31:00 PM
From: Logos	Read Replies (1) \| Respond to of 9980

RE: <<Cool. A true believer. What do you think our proper role in economic intervention should be? Should we kill the IMF or what?>> A lot of people don't like the IMF, and some people downright hate it. Camdessus is probably one of the most unpopular people in the world, and has been this way for years. The IMF emphasis on government financial responsibility (read: lower deficits, lower inflation, no matter the social cost) at the time when client governments can least afford it (riots in the streets, people hanging each other in effigy or literally, massive unemployment and hardship) strikes a lot of people as unncessarily brutish. Plus the IMF keeps getting blind-sided by problems right under its nose (I don't recall the IMF yelling and screaming about an impending Asian crash all through the 1990s). So we can safely say that the IMF has a serious need for adjustment. My question, however, is this: So what will you replace it with? And when do you propose to do this? It's clear that we need something like the IMF for the present and forseeable future, since even though it sucks, the alternative is worse for everyone. Logos

To: Frodo Baxter who wrote (5851)	8/25/1998 3:35:00 AM
From: tom	Respond to of 9980

Not that you need any more reasons for disagreeing with Krugman but here's Goldman's contribution to the argument (I can't think why they'd disagree with capital controls!!) Goldmans believe that ad hoc capital controls are a bad idea because.... 1. In many Asian countries, real interest rates are already coming down 2. Even if interest rates came down, banks would not start lending until they are recapitalised. Interest rate reduction would also throw away any opportunity to source bank capital from overseas. 3. Capital flight 4. Asian currencies are undervalued in real terms so whether inflation rises or currencies appreciate. Expected real appreciation and international arbitrage means that countries can show negative real interest rates (eg Indonesia) but still attract capital inflows. If you cut off short term capital inflows then this stabilization is gone. I agree with the bulk of these points but I have sympathy for Krugman's argument which is that Asia is imploding and there is no point in trying to maintain a strong currency if you are running your economy into the ground. The reason you are trying to maintain a strong currency is so that companies with foreign debt can pay some of this debt back. If they are go bankrupt they will not be able to do this.