SUNS  4360  Tuesday  26  January  1999

Bangkok, Jan 25 (IPS/Boonthan Sakanond) - Under intense attack for their failures in dealing with East Asia's economic crisis, the International Monetary Fund (IMF) and World Bank (WB) are desperately launching fire-fighting measures to ease the recession's social impact.

But critics fear that without adequate rethinking of the policies they prescribe to governments, the twin multilateral lending bodies may end up putting a `human face' only to their public image -- and not to the development process they promote.

At a World Bank-sponsored meeting in Bangkok over the weekend, the two agencies along with delegates from the government and non-governmental sector brainstormed about responses to the social disaster created by the region's economic crisis.

They targeted action areas like employment generation, protection of health and education services, tackling social consequences at the city and community level and monitoring poverty impact and income distribution.
  
In a curious shift away from its usual focus on macroeconomic issues, the World Bank has identified small and medium enterprises and microfinance institutions as institutions which can reach the most number of affected people.

"Rampant unemployment and inflation have pushed millions of households back into poverty. School attendance and health status are under threat, and gender gaps may well widen again," said a report by the Bank at the meeting.

The report expressed fears that unless something is done quickly, East Asia's past success in poverty reduction and human development could be undone.

Since July 1997, the Bank has pledged some $16 billion to the region and already disbursed more than $4 billion in structural adjustment loans, which Bank officials say have strong social content.

In Indonesia, Thailand and South Korea, the three countries hardest hit by the crisis, Bank funds are being used in job creation projects, training for the unemployed, low-income health insurance schemes, small-scale community projects and larger municipal projects.

Bank project funds are also being used to set up a monitoring system to evaluate the crisis' impact and of public action on the poor.

"It is critical that social suffering is alleviated not only for human reasons, but also for the sake of a rapid micro and macroeconomic recovery," says Jean-Michel Severino, World Bank's vice president for East Asia and Pacific.

He expects further deterioration of the social situation in the coming year. Maintaining adequate levels of social spending, Bank officials say, is the only way of containing the damage due to the economic crisis.

Given its emphasis on social spending, it is not surprising that the World Bank has openly clashed with the Fund, criticising the latter for its imposition of tight fiscal and monetary policies and cutbacks in state spending in the crisis' early stages. These steps are believed to have worsened the situation.

In a rare admission of its fallibility, the IMF this month said in a report it had "underestimated the economic downturn and misjudged the market response to its support programme for Thailand, South Korea and Indonesia".

But IMF officials defended the tight fiscal and monetary policies they prescribed to governments in the region, saying they were needed "at the time to restore confidence and to prevent the crisis-hit economies from plunging into an inflation-depreciation spiral".

Many Fund insiders believe that by publicly criticising these policies, the World Bank is trying to isolate the IMF and to distance itself from blame for responding poorly to the crisis.

"The (World) Bank was primarily responsible for designing and monitoring the social protection components of the adjustment programmes in Asia," said Peter Heller, IMF deputy director, at the Bangkok meeting.

To some, his remarks seemed to imply it is the Bank that should take major responsibility for the severity of the social crisis. Heller added the Bank had spent "many years and considerable resources on Indonesia", where social infrastructure has failed to cope with the impact of the crisis.

Such public squabbling between the Bretton Woods twins further undermines their credibility among social organisations and long-time critics of the economic doctrine they prescribe.

"Reform of the IMF and World Bank is required so that structural adjustment programmes promote good governance, respect for human rights and core labour standards, increased employment and poverty reduction, rather than current policies of austerity," said a statement issued at the meeting by the International Confederation of Free Trade Unions.

Critics also accuse the World Bank and IMF of having promoted policies designed to undermine the role of the state in social and economic activity -- in tune with the almost fanatic neo-liberal, free-market theories that dominated government thinking in the United States and Britain during the eighties.

Both agencies have been among strongest proponents of financial liberalisation across East Asia -- a trend now believed to have led to excessive dependence on foreign capital flows and ultimately, the collapse of economies after nervous foreign investors stampeded out of the region.

The IMF is also accused of furthering the United States' agenda during the crisis by insisting that governments further open key sectors like banking to foreign ownership.

In his new book 'A Siamese Tragedy', economist Walden Bello quotes a U.S. senior commerce official as saying at the onset of the Asian crisis: "Most of these countries are going to go through a deep and dark tunnel. But on the other end there is going to be a significantly different Asia in which Americans have achieved much deeper market penetration, much greater access."

The World Bank and IMF have also been hit for lack of transparency and lack of accountability to the large numbers of people affected by their decisions.

Ironically, the two agencies are convinced the Asian crisis is due to crony capitalism, corruption and lack of transparency -- and not to their misplaced policy prescriptions.

As one NGO critic puts it: "In Indonesia even a long-time dictator like Suharto had to wind up his rule because he messed up the economy. But at the IMF and World Bank, no heads have rolled for far greater mistakes they have committed with the entire region's economy."