The International Monetary Fund should consider the economic impact on the weak when setting conditions on aid for currency crisis-hit countries, an advisory body to the finance minister said Tuesday, in reference to the social confusion in Indonesia.
A subcommittee of the Committee on Foreign Exchange and Other Transactions also suggested that emerging countries set up certain regulations on the influx of foreign capital, because vast inflow incurs risks on local financial institutions.
In what a ministry official touted as “the world’s most comprehensive” report on the Asian crisis, the subpanel on Asian financial and capital markets proposed preventive measures against another crisis. The proposals targeted emerging countries, international organizations, developed countries and lenders, and the Japanese government.
The report says the IMF required hasty reforms for Indonesia’s economy as conditions for extending loans and the rushed reforms complicated the internal problems. The IMF needs to carefully examine the steps it takes to help aid-receiving countries regain the confidence of the market, it says.
The IMF should therefore beef up its efforts to collect and analyze local information through local governments and nongovernmental organizations, the report adds. However, the Indonesian government is also responsible for the current turmoil because it agreed to the conditions, said Takatoshi Ito, a Hitotsubashi University professor who heads the subpanel.
In a proposal to emerging countries, the report recommends that governments impose prudential regulations on capital inflow by, for instance, raising banks’ reserve ratio against deposits to maintain the financial health of local banks that accept short-term, risky capital.
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