Opinion Welcoming back the Fund

It was also clear to his mostly Asian audience — and not least the host nation — that the divisions within Asia make it essential that the IMF play a significant role in Asia as well as globally. It seemed poignant that South Korea — in 1998 the recipient of the IMF’s overdoses of financial purgatives — is currently chair of the Group of 20,which has emerged from the Western financial crisis as the most important of global groupings.

Naturally,this is cause for much flag waving and satisfaction about Asian successes in overcoming the recent recession while continuing to increase Asia’s share of global trade and build ever-larger foreign reserves. Yet dynamic,middle-sized nations like South Korea recognise that they have a particular interest in ensuring that global institutions such as the IMF and the World Trade Organisation do not wither,but serve as tools for the broader base of power represented by the G-20.

Asia is now a major lender to the IMF,rather than a recipient of its support. Its position should be used to increase Asia’s role in the organisation,which was crucial to the open trading and financial systems from which most of Asia has benefited so much over the past 50 years.

There is recognition,too,that for the foreseeable future Asian regional organisations cannot be a substitute for global ones. There does now exist the seed of an Asian Monetary Fund in a $120 billion lending facility established by China,Japan,South Korea and the 10 members of ASEAN.

But this new fund represents a tiny fraction of the contributors’ combined reserves; it has yet to be tested in practice,and has only the beginnings of an institutional framework. Progress is always hobbled by Chinese-Japanese rivalry. It is clearly insufficient for the size,speed and contagion of modern financial crises. Nor is there any prospect that it can be expanded to include India. For these purposes Asia stops at the Bay of Bengal.

But the IMF,which once saw any potential Asian Monetary Fund as a threat and opposed a Japanese effort to create one in 1998,is now recognising that such regional organisations are complementary,not competitive,to its own role. Indeed,the recent crisis in Europe showed that even the mighty eurozone needed the IMF as a complement to its own resources,in expertise as well as cash.

South Korea,in its role as G-20 chairman,is trying to take the notion of burden-sharing to mitigate financial mishaps a step further with a proposal for cross-border safety nets that would obviate the perceived need for huge exchange reserves to guard against sudden capital flight. The post-Asian crisis search for ever bigger reserves has contributed to global trade imbalances.

South Korea is also looking at ways of reducing the political stigma attached to the sort of medicine recently imposed on Greece and still a painful memory here. East Asian nations,with their cash hoards and records of successful economic management,surely need to be playing a larger global role via the IMF. But not all the future lies with this part of Asia,where several economies are mature and all face demographic challenges in the not-too-distant future.

Trade and financial links between maturing East Asia on the one hand,and youthful South and West Asia on the other,are weak. They are improving,but the needs of the latter are far more likely to be met through global organisations than ones dominated by East Asia — even assuming that China and Japan can cooperate.

Meanwhile,medium-size,trade-oriented countries like South Korea know very well that they have a bigger stake in the success of global institutions than China or even the United States,which for so long has been their godfather.

Welcome back to East Asia,IMF!