Back
About RSIS
Introduction
Building the Foundations
Welcome Message
Board of Governors
Staff Profiles
Executive Deputy Chairman’s Office
Dean’s Office
Management
Distinguished Fellows
Faculty and Research
Associate Research Fellows, Senior Analysts and Research Analysts
Visiting Fellows
Adjunct Fellows
Administrative Staff
Honours and Awards for RSIS Staff and Students
RSIS Endowment Fund
Endowed Professorships
Career Opportunities
Getting to RSIS
Research
Research Centres
Centre for Multilateralism Studies (CMS)
Centre for Non-Traditional Security Studies (NTS Centre)
Centre of Excellence for National Security
Institute of Defence and Strategic Studies (IDSS)
International Centre for Political Violence and Terrorism Research (ICPVTR)
Research Programmes
National Security Studies Programme (NSSP)
Social Cohesion Research Programme (SCRP)
Studies in Inter-Religious Relations in Plural Societies (SRP) Programme
Other Research
Future Issues and Technology Cluster
Research@RSIS
Science and Technology Studies Programme (STSP) (2017-2020)
Graduate Education
Graduate Programmes Office
Exchange Partners and Programmes
How to Apply
Financial Assistance
Meet the Admissions Team: Information Sessions and other events
RSIS Alumni
Outreach
Global Networks
About Global Networks
RSIS Alumni
Executive Education
About Executive Education
SRP Executive Programme
Terrorism Analyst Training Course (TATC)
International Programmes
About International Programmes
Asia-Pacific Programme for Senior Military Officers (APPSMO)
Asia-Pacific Programme for Senior National Security Officers (APPSNO)
International Conference on Cohesive Societies (ICCS)
International Strategy Forum-Asia (ISF-Asia)
Publications
RSIS Publications
Annual Reviews
Books
Bulletins and Newsletters
RSIS Commentary Series
Counter Terrorist Trends and Analyses
Commemorative / Event Reports
Future Issues
IDSS Papers
Interreligious Relations
Monographs
NTS Insight
Policy Reports
Working Papers
External Publications
Authored Books
Journal Articles
Edited Books
Chapters in Edited Books
Policy Reports
Working Papers
Op-Eds
Glossary of Abbreviations
Policy-relevant Articles Given RSIS Award
RSIS Publications for the Year
External Publications for the Year
Media
Cohesive Societies
Sustainable Security
Other Resource Pages
News Releases
Speeches
Video/Audio Channel
External Podcasts
Events
Contact Us
S. Rajaratnam School of International Studies Think Tank and Graduate School Ponder The Improbable Since 1966
Nanyang Technological University Nanyang Technological University
  • About RSIS
      IntroductionBuilding the FoundationsWelcome MessageBoard of GovernorsHonours and Awards for RSIS Staff and StudentsRSIS Endowment FundEndowed ProfessorshipsCareer OpportunitiesGetting to RSIS
      Staff ProfilesExecutive Deputy Chairman’s OfficeDean’s OfficeManagementDistinguished FellowsFaculty and ResearchAssociate Research Fellows, Senior Analysts and Research AnalystsVisiting FellowsAdjunct FellowsAdministrative Staff
  • Research
      Research CentresCentre for Multilateralism Studies (CMS)Centre for Non-Traditional Security Studies (NTS Centre)Centre of Excellence for National SecurityInstitute of Defence and Strategic Studies (IDSS)International Centre for Political Violence and Terrorism Research (ICPVTR)
      Research ProgrammesNational Security Studies Programme (NSSP)Social Cohesion Research Programme (SCRP)Studies in Inter-Religious Relations in Plural Societies (SRP) Programme
      Other ResearchFuture Issues and Technology ClusterResearch@RSISScience and Technology Studies Programme (STSP) (2017-2020)
  • Graduate Education
      Graduate Programmes OfficeExchange Partners and ProgrammesHow to ApplyFinancial AssistanceMeet the Admissions Team: Information Sessions and other eventsRSIS Alumni
  • Outreach
      Global NetworksAbout Global NetworksRSIS Alumni
      Executive EducationAbout Executive EducationSRP Executive ProgrammeTerrorism Analyst Training Course (TATC)
      International ProgrammesAbout International ProgrammesAsia-Pacific Programme for Senior Military Officers (APPSMO)Asia-Pacific Programme for Senior National Security Officers (APPSNO)International Conference on Cohesive Societies (ICCS)International Strategy Forum-Asia (ISF-Asia)
  • Publications
      RSIS PublicationsAnnual ReviewsBooksBulletins and NewslettersRSIS Commentary SeriesCounter Terrorist Trends and AnalysesCommemorative / Event ReportsFuture IssuesIDSS PapersInterreligious RelationsMonographsNTS InsightPolicy ReportsWorking Papers
      External PublicationsAuthored BooksJournal ArticlesEdited BooksChapters in Edited BooksPolicy ReportsWorking PapersOp-Eds
      Glossary of AbbreviationsPolicy-relevant Articles Given RSIS AwardRSIS Publications for the YearExternal Publications for the Year
  • Media
      Cohesive SocietiesSustainable SecurityOther Resource PagesNews ReleasesSpeechesVideo/Audio ChannelExternal Podcasts
  • Events
  • Contact Us
    • Connect with Us

      rsis.ntu
      rsis_ntu
      rsisntu
      rsisvideocast
      school/rsis-ntu
      rsis.sg
      rsissg
      RSIS
      RSS
      Subscribe to RSIS Publications
      Subscribe to RSIS Events

      Getting to RSIS

      Nanyang Technological University
      Block S4, Level B3,
      50 Nanyang Avenue,
      Singapore 639798

      Click here for direction to RSIS

      Get in Touch

    Connect
    Search
    • RSIS
    • Publication
    • RSIS Publications
    • CO07068 | The IMF: Dogma Versus Unorthodoxy Can We afford another Clash?
    • Annual Reviews
    • Books
    • Bulletins and Newsletters
    • RSIS Commentary Series
    • Counter Terrorist Trends and Analyses
    • Commemorative / Event Reports
    • Future Issues
    • IDSS Papers
    • Interreligious Relations
    • Monographs
    • NTS Insight
    • Policy Reports
    • Working Papers

    CO07068 | The IMF: Dogma Versus Unorthodoxy Can We afford another Clash?
    Yang Razali Kassim

    02 July 2007

    download pdf

    Commentary

    ON THE 10th anniversary of the 1997 Asian Financial Crisis, a group of former policymakers directly involved in tackling the regional upheaval huddled in Singapore with analysts for some self- reflection. Debating the key lessons from the turmoil at a conference organized by the S. Rajaratnam School of International Studies (RSIS) were such personalities as Hubert Neiss, Eisuke Sakakibara, better known as “Mr Yen”, and Soedrajad Djiwandono. A number of serving officials were also there, such as those from the Monetary Authority of Singapore and the Bank of Thailand – the central bank of the country where the crisis began. There were also prominent economists like K.S Jomo, who now serves as Assistant Secretary-General of economic affairs at the United Nations, and Lim Chong Yah, the guru of many an economist and currently professor at Nanyang Technological University.

    IMF, saviour or destroyer?

    The presence of Neiss was particularly helpful as he was, at the height of the financial crisis, the Asia Pacific point man for the International Monetary Fund (IMF); he was the one who brought the bitter pills for the distressed countries that turned to the IMF for assistance. One such country that Neiss had to relate to was Indonesia. The Indonesian case must surely be a subject not to be missed by anyone studying the economic and political turmoil arising from the region-wide financial tsunami whose causes and consequences will remain a subject of intense debate for many years to come. It was Indonesia which suffered one of the worst repercussions, leading eventually to the unthinkable – the fall of strongman Suharto. One man who was right in the eye of the storm in Jakarta was Soedrajad, the then governor of the central bank, Bank Indonesia. Soedrajad was sacked by Suharto for a sin that he had no choice but to commit – closing down several weak banks, including those owned by members of the Suharto family.

    As a multilateral institution, the IMF’s role and relevance will continue to be as much debated, and disputed, as the Asian crisis itself. Was the IMF a saviour, or a destroyer? Did the IMF know what it was doing when it prescribed all the painful reforms – or “conditionalities” — for assistance? One of those highly critical of the IMF, or the way it went about its rescue missions, was Sakakibara. The then Japanese vice-minister for finance in international affairs developed a reputation for proposing an Asian Monetary Fund. The AMF was seen as the answer to an IMF that was found seriously wanting. The AMF would be the self-help mechanism for East Asia; it would allow Asia to resort to the region’s stronger currencies such as the yen to defend against the marauding speculative currency attacks that unravelled Asia. The AMF idea was to some as controversial as its proponent, or the institution it sought to complement. The United States and its allies saw it as an unacceptable move that could undermine the IMF but it also gave rise to suspicions of Japanese intentions, especially in China. In the end it never took off, at least not in its original form, although with hindsight some say, the AMF could well have been a saviour.

    Clearly, the ingredients of a boisterous debate within the RSIS forum were there. Indeed, aided by the Chatham House rule of non-attribution, there was a lively engagement on the key issues of how the region went badly wrong. More important was the focus on the key lessons learned, or half-learned – or yet to be learned from the Asian financial crisis.

    Lessons from the Asian Crisis

    One obvious lesson of course was the folly of imposing micro-economic dogma which the IMF had been heavily criticized for. The almost uncompromising imposition of IMF dogma, without regard to the peculiarities of each affected country, clearly exacerbated the crisis. Not surprisingly, the IMF was seen by its detractors more as an instrument of US economic and foreign policy. Its insistence on the “Washington consensus” of neo-liberalist financial reform inevitably caused the IMF to be caught up in a titanic intellectual clash between Asia and the West – triggering an unprecedented frenzy of Asian neo-nationalism. The icon of the pro-Asia school was of course Mahathir Mohamad, the then prime minister of Malaysia, who saw an Asia under siege. His counter-formula of currency controls was to him a matter of national survival. He was so convinced of an international conspiracy that all his detractors were swept aside, including his finance minister Anwar Ibrahim. Mahathir’s controversial counter-strategy on finance however proved successful in defending the Malaysian economy — and his political position as well.

    In contrast, when Indonesia tried to similarly resist IMF dogma, it led to unrelenting IMF pressure for reforms which Suharto proved unwilling to fully execute. It eventually led to his downfall. It is no wonder that some see the IMF as the hidden hand behind the regime change in Jakarta, worsened by that infamous picture of the IMF’s chief Michel Camdessus looking down with arms folded, seemingly haughtily, over a defeated Suharto as he signed the IMF Letter of Intent. One person with such a view was Mahathir, whose fear for his own position partly explained his dogged defence – and sacking of Anwar. Whatever the circumstances, Mahathir’s unorthodox response to the financial crisis, contrasted with Suharto’s demise, will remain one of the key issues in how to deal – or how not to deal — with the next financial crisis, should it come again.

    Tellingly, there are not a few people who believe a new regional financial crisis is something not to be ruled out. Should it come to pass – touch wood – will we again see a battle between dogma and unorthodoxy? And who will be bold enough to stand alone against the tide of the world at such a new moment of crisis? In this regard, the Mahathir formula was also very much a lesson in leadership, precisely because it was uncharacteristically out-of-the-box. Yet, some say, his actions and statements may have also exacerbated the impact of the crisis on Malaysia and economists are still debating whether the imposition of currency controls only occurred after the worst of the crisis.

    No Blame Game

    All told, there is no disputing that there were serious and painful mistakes made by many parties in the Asian Crisis. This was perhaps inevitable given that many trouble-shooting decisions had to be made on the run. The rush for instant solutions would just as inevitably lead to some reckless outcomes. No doubt the IMF was wrong on many counts. The crisis could have been better contained had the international community been more decisive in extending bridging loans to the crisis-hit economies. But the affected countries certainly cannot be absolved from blame either. Would they have come under attack by the currency speculators had their financial and banking systems not been so vulnerable? Did they take positions which worsened the impact of the crisis?

    It was the first major international financial crisis to hit Asia in the age of contemporary globalization. The crisis did not however, according to the pro-IMF school, come out of the blue but was triggered by changing market sentiments. It was a market response to premature liberalization and to flaws in the financial and economic systems, as manifested by weak corporate governance and cronyism. The pro-IMF school however seems convinced that the IMF should not be the only one to carry the can, whatever the mistakes. For despite all the mistakes, the pro-IMF school seems to say, the overall strategy turned out to be successful, wasn’t it? Perhaps, but at what cost?

    In hindsight, looking at the rise of China, and now India, the Asian financial tsunami may have also unleashed new energy that is putting Asia back firmly on a growth-oriented path. But should some old errors recur, let there be no need for another clash between dogma and unorthodoxy. We simply cannot afford it.

    About the Author

    Yang Razali Kassim is Senior Fellow with the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University. His book, Transition Politics in Southeast Asia, looks at leadership change and the political consequences of the Asian financial crisis on Indonesia and Malaysia. 

    Categories: RSIS Commentary Series

    Commentary

    ON THE 10th anniversary of the 1997 Asian Financial Crisis, a group of former policymakers directly involved in tackling the regional upheaval huddled in Singapore with analysts for some self- reflection. Debating the key lessons from the turmoil at a conference organized by the S. Rajaratnam School of International Studies (RSIS) were such personalities as Hubert Neiss, Eisuke Sakakibara, better known as “Mr Yen”, and Soedrajad Djiwandono. A number of serving officials were also there, such as those from the Monetary Authority of Singapore and the Bank of Thailand – the central bank of the country where the crisis began. There were also prominent economists like K.S Jomo, who now serves as Assistant Secretary-General of economic affairs at the United Nations, and Lim Chong Yah, the guru of many an economist and currently professor at Nanyang Technological University.

    IMF, saviour or destroyer?

    The presence of Neiss was particularly helpful as he was, at the height of the financial crisis, the Asia Pacific point man for the International Monetary Fund (IMF); he was the one who brought the bitter pills for the distressed countries that turned to the IMF for assistance. One such country that Neiss had to relate to was Indonesia. The Indonesian case must surely be a subject not to be missed by anyone studying the economic and political turmoil arising from the region-wide financial tsunami whose causes and consequences will remain a subject of intense debate for many years to come. It was Indonesia which suffered one of the worst repercussions, leading eventually to the unthinkable – the fall of strongman Suharto. One man who was right in the eye of the storm in Jakarta was Soedrajad, the then governor of the central bank, Bank Indonesia. Soedrajad was sacked by Suharto for a sin that he had no choice but to commit – closing down several weak banks, including those owned by members of the Suharto family.

    As a multilateral institution, the IMF’s role and relevance will continue to be as much debated, and disputed, as the Asian crisis itself. Was the IMF a saviour, or a destroyer? Did the IMF know what it was doing when it prescribed all the painful reforms – or “conditionalities” — for assistance? One of those highly critical of the IMF, or the way it went about its rescue missions, was Sakakibara. The then Japanese vice-minister for finance in international affairs developed a reputation for proposing an Asian Monetary Fund. The AMF was seen as the answer to an IMF that was found seriously wanting. The AMF would be the self-help mechanism for East Asia; it would allow Asia to resort to the region’s stronger currencies such as the yen to defend against the marauding speculative currency attacks that unravelled Asia. The AMF idea was to some as controversial as its proponent, or the institution it sought to complement. The United States and its allies saw it as an unacceptable move that could undermine the IMF but it also gave rise to suspicions of Japanese intentions, especially in China. In the end it never took off, at least not in its original form, although with hindsight some say, the AMF could well have been a saviour.

    Clearly, the ingredients of a boisterous debate within the RSIS forum were there. Indeed, aided by the Chatham House rule of non-attribution, there was a lively engagement on the key issues of how the region went badly wrong. More important was the focus on the key lessons learned, or half-learned – or yet to be learned from the Asian financial crisis.

    Lessons from the Asian Crisis

    One obvious lesson of course was the folly of imposing micro-economic dogma which the IMF had been heavily criticized for. The almost uncompromising imposition of IMF dogma, without regard to the peculiarities of each affected country, clearly exacerbated the crisis. Not surprisingly, the IMF was seen by its detractors more as an instrument of US economic and foreign policy. Its insistence on the “Washington consensus” of neo-liberalist financial reform inevitably caused the IMF to be caught up in a titanic intellectual clash between Asia and the West – triggering an unprecedented frenzy of Asian neo-nationalism. The icon of the pro-Asia school was of course Mahathir Mohamad, the then prime minister of Malaysia, who saw an Asia under siege. His counter-formula of currency controls was to him a matter of national survival. He was so convinced of an international conspiracy that all his detractors were swept aside, including his finance minister Anwar Ibrahim. Mahathir’s controversial counter-strategy on finance however proved successful in defending the Malaysian economy — and his political position as well.

    In contrast, when Indonesia tried to similarly resist IMF dogma, it led to unrelenting IMF pressure for reforms which Suharto proved unwilling to fully execute. It eventually led to his downfall. It is no wonder that some see the IMF as the hidden hand behind the regime change in Jakarta, worsened by that infamous picture of the IMF’s chief Michel Camdessus looking down with arms folded, seemingly haughtily, over a defeated Suharto as he signed the IMF Letter of Intent. One person with such a view was Mahathir, whose fear for his own position partly explained his dogged defence – and sacking of Anwar. Whatever the circumstances, Mahathir’s unorthodox response to the financial crisis, contrasted with Suharto’s demise, will remain one of the key issues in how to deal – or how not to deal — with the next financial crisis, should it come again.

    Tellingly, there are not a few people who believe a new regional financial crisis is something not to be ruled out. Should it come to pass – touch wood – will we again see a battle between dogma and unorthodoxy? And who will be bold enough to stand alone against the tide of the world at such a new moment of crisis? In this regard, the Mahathir formula was also very much a lesson in leadership, precisely because it was uncharacteristically out-of-the-box. Yet, some say, his actions and statements may have also exacerbated the impact of the crisis on Malaysia and economists are still debating whether the imposition of currency controls only occurred after the worst of the crisis.

    No Blame Game

    All told, there is no disputing that there were serious and painful mistakes made by many parties in the Asian Crisis. This was perhaps inevitable given that many trouble-shooting decisions had to be made on the run. The rush for instant solutions would just as inevitably lead to some reckless outcomes. No doubt the IMF was wrong on many counts. The crisis could have been better contained had the international community been more decisive in extending bridging loans to the crisis-hit economies. But the affected countries certainly cannot be absolved from blame either. Would they have come under attack by the currency speculators had their financial and banking systems not been so vulnerable? Did they take positions which worsened the impact of the crisis?

    It was the first major international financial crisis to hit Asia in the age of contemporary globalization. The crisis did not however, according to the pro-IMF school, come out of the blue but was triggered by changing market sentiments. It was a market response to premature liberalization and to flaws in the financial and economic systems, as manifested by weak corporate governance and cronyism. The pro-IMF school however seems convinced that the IMF should not be the only one to carry the can, whatever the mistakes. For despite all the mistakes, the pro-IMF school seems to say, the overall strategy turned out to be successful, wasn’t it? Perhaps, but at what cost?

    In hindsight, looking at the rise of China, and now India, the Asian financial tsunami may have also unleashed new energy that is putting Asia back firmly on a growth-oriented path. But should some old errors recur, let there be no need for another clash between dogma and unorthodoxy. We simply cannot afford it.

    About the Author

    Yang Razali Kassim is Senior Fellow with the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University. His book, Transition Politics in Southeast Asia, looks at leadership change and the political consequences of the Asian financial crisis on Indonesia and Malaysia. 

    Categories: RSIS Commentary Series

    Popular Links

    About RSISResearch ProgrammesGraduate EducationPublicationsEventsAdmissionsCareersVideo/Audio ChannelRSIS Intranet

    Connect with Us

    rsis.ntu
    rsis_ntu
    rsisntu
    rsisvideocast
    school/rsis-ntu
    rsis.sg
    rsissg
    RSIS
    RSS
    Subscribe to RSIS Publications
    Subscribe to RSIS Events

    Getting to RSIS

    Nanyang Technological University
    Block S4, Level B3,
    50 Nanyang Avenue,
    Singapore 639798

    Click here for direction to RSIS

    Get in Touch

      Copyright © S. Rajaratnam School of International Studies. All rights reserved.
      Privacy Statement / Terms of Use
      Help us improve

        Rate your experience with this website
        123456
        Not satisfiedVery satisfied
        What did you like?
        0/255 characters
        What can be improved?
        0/255 characters
        Your email
        Please enter a valid email.
        Thank you for your feedback.
        This site uses cookies to offer you a better browsing experience. By continuing, you are agreeing to the use of cookies on your device as described in our privacy policy. Learn more
        OK
        Latest Book
        more info