During its recent annual meeting in Singapore, the shareholders of the International Monetary Fund endorsed reforms proposed by the fund's executive board concerning quota reallocations, surveillance functions and debt relief for the world's poorest countries. The fund's deputy director for Asia Pacific, Daniel Citrin, spoke with The Jakarta Post's Riyadi Suparno about the reforms.
Question: Under the quota reform, the voting power of four developing countries -- China, South Korea, Mexico and Turkey -- will increase. As two of these affected countries are in Asia, what does it mean for Asia?
Answer: Clearly the voice of Asia will increase. In the first phase, the voice of China and Korea has gone up. The second stage will take some time, and the exact outcome will depend on the precise nature of the formula, and exactly how the new formula is established. But one can expect that the share of Asian countries to go up further.
With the increased quota, which some say is not really significant, can Asia influence the decision-making process at the IMF?
Of course. It's a cooperative agency, everyone has a share, and certainly Asia can influence the decision making. Every issue is discussed at the executive board. But to a certain extent, the extent of Asian influence in decision making will also depend on the extent to which they contribute in a positive manner by giving good ideas, and communicating them effectively in the board and in other ways, and many of them already have done that.
As the fund has been shifting its focus from crisis resolution to crisis prevention, how will this affect your operations at the country level, like in Indonesia?
We have been focusing much more on crisis prevention for the last few years as the recovery in emerging markets, both in Asia and the rest of the world, has proceeded. Much more of our work has been on giving effective, ongoing advice, having ongoing dialog with authorities of various countries, trying to prevent crises from occurring.
In terms of our country operations, for example in Indonesia, we maintain the extent of our resources that we devote at the operational level, in terms of ongoing assessment of the economic situation, providing technical assistance in fiscal, banking and other areas. The size of our office there is still large. So, in that sense, I think at the desk level, our operation has not changed very much.
Obviously, at the institutional level, we are devoting considerable thinking to how we can come up with new instruments that could maybe help prevent crises from reoccurring. Now we have this proposal for new lending instruments, but it needs further work.
Some initial proposals on how to design such instruments were being discussed at the executive board in late August, and we got the endorsement of the International Monetary and Finance Committee (which has the responsibility of advising, and reporting to, the Board of Governors on a wide range of issues) to continue working on such instruments.
Would you please elaborate more on these new instruments?
It's more to increase the arsenal of instruments to prevent crises from occurring. The cost of a crisis when it happens is high. A crisis is always costly. So we are trying to prevent that from occurring.
Many things need to be done. One is surveillance. We give good effective advice in advance that will ideally result in policy changes in member countries in advance. But another tool is to provide some kind of insurance policy in advance that provides a pool of money countries can borrow from in case they run into trouble.
So, first of all, it reduces the cost of a crisis if it happens because there is some money they can draw from. In addition, it can also provide confidence to the financial market as a signal. When the market can see there is a pool of money available, they will be more confident.
The problem is that IMF advice to member countries, especially when they are not in crisis, is often ignored. How will you make your advice more effective?
First of all, we have to make sure that you pay attention to circumstances in the country, and be sensitive to the objectives of the government and the public. I think this is something we have tried as much as possible for a number of years to get across to the people that we work with. There is no one-size-fits-all approach.
We have to do the best job possible to analyze the situation, and then try to convince the public, talking to the academics, talking to the media, talking to civil society groups.
But I think we all believe in the need for macroeconomic stability and market-oriented policies that promote growth. There are many different approaches that attain to those objectives. So, we are trying to be more flexible.
How do you see postcrisis countries in East Asia, especially Indonesia? What is the possibility or danger of another crisis?
The situation in these countries is different now, and the possibility of a crisis is much more remote. Basically, these countries have much stronger reserve positions, and they have flexible exchange rate systems.
The big problem prior to the crisis was a lot of borrowing in foreign currencies, combined with fixed exchange rates, which is a recipe for disaster.
So, these countries have stronger positions. Their vulnerability is far reduced. The banking system -- maybe in Indonesia it still has some problems -- is much stronger. So, in that sense, the chance for a crisis is pretty slim.
Even in Indonesia, although there is some fragility that remains, the main issue for Indonesia is to put in place the structural reforms to get growth going and reduce unemployment. It is not so much an issue of financial vulnerability and financial crisis in Indonesia, but much more about making sure that things get done to promote growth.
