by Kamal Malhotra*
THE World Bank Group’s meeting on social issues arising from the East Asia economic crisis and policy implications for the future -- held in Bangkok 21 and 22 January and attended by over 200 official government and multilateral organisation delegates from around the world in addition to some civil society delegates and organisations -- appears to have been the first such official major meeting held to discuss the medium and long-term social policy issues highlighted or created by the East and Southeast Asian crisis which was triggered by the collapse of the Thai Baht on July 2,1997.
Apart from its central geographic location in Asia, the Bangkok venue was symbolically significant because Thailand was the country that triggered the crisis contagion. That the meeting was being held at a time when the reverberations of the collapse of the Brazilian Real, the latest victim of the contagion, were just beginning to be felt and discussed together with renewed fears of a Chinese Yuan devaluation also made it an interesting week to hold the meeting.
It was acknowledged by many, if not the IMF, that notwithstanding the relative stabilisation of the currencies of East Asia over the past few months, recovery in these countries had not really begun, while the global crisis, symbolised by the Brazilian currency collapse, was far from over. Indeed, there was considerable hushed talk in the corridors of the UN Convention Centre in Bangkok about the Brazilian crash once again raising the spectre of global depression given the particularly close relationship between the economies of the United States and Brazil.
Jean-Michel Severino, Vice-President of the World Bank for East Asia was the most senior Bank official present at the gathering, which was opened by H.E. Chuan Leek-Pai, Prime Minister of Thailand, Adrianus Mooy, the Head of UNESCAP and Mr. Severino himself.
Katherine Marshall, the World Bank’s Director of Social Policy for East Asia, was responsible for the substantive agenda and process of the meeting. At a dinner hosted by the Bank the night before the meeting, Katherine excitedly and enthusiastically said to me that she saw this meeting as the beginning of a new innovative process for the Bank and that she was more interested in the process outcomes of the meeting than its content. Over the next two days I tried, with an open mind, to understand what was substantively different in this meeting’s process from previous meetings organised by the Bank that I have been involved with in the past.
In retrospect, I suspect that it was the invitation of a number of civil society delegates to such a high level official meeting and the invitation to Martin Khor of Third World Network, Malaysia and to Focus on the Global South to speak on the two main plenary panels entitled "Human Dimensions of the Asian Crisis: The Link between Macro Policy and Social Consequences" and "Overview of Medium and Long-Term Objectives at the Regional Level" together with high level government and inter-governmental luminaries such as Hubert Neiss, the infamous IMF Director for Asia (in the case of the first panel) and Mr. Hideaki Domichi, Deputy Director General of Economic Cooperation in Japan’s Ministry of Foreign Affairs, Robert Randolf, Deputy Assistant Administrator, USAID and Benjamin Diokno, the Philippine Government’s Cabinet Minister for the Budget and Management (in the case of the second panel) which may have been a departure from previous practice.
In addition, the World Bank’s public admission through Mr. Severino that it had got many aspects of the crisis wrong and still did not understand many of its complex impacts and implications and that the official response packages had focused too narrowly and exclusively on attempting to stabilise exchange rates at all costs was a positive outcome of the meeting. The Bank also sees as new its proposal to have similar meetings in the region every six months, perhaps co-hosted by local civil society organisations as constituting a departure from the past, and to be fair, in some senses, this will be the case if such meetings were to occur.
New Directions or Business As Usual?
But all this innovation begs some fundamental questions, especially in a context when much of the actual meeting appeared to be business as usual. Indeed, while only time will tell if the innovations alluded to in the previous paragraphs will have any substantial impact on future macro and social policy in a direction which makes them more people and human development friendly, it is important to raise some of these more fundamental issues at this stage as we reflect on both the process and outcomes of the Bangkok meeting in the week after its conclusion.
While Mr. Severino opened the meeting by expressing the Bank’s humility in the face of the crisis and having got many of its key aspects wrong, this was, in a way, beside the point. The IMF should have been the one expressing humility and the World Bank should really have been apologising for something quite different, that is for having let the IMF totally dominate the economic response to the crisis, leaving it to play the role of a distant second fiddle -- one whose main roles had so far been to play the good cop role to the IMF’s bad cop and to clean up the social mess created as a consequence of the IMF’s policy prescriptions.
Indeed, the International Monetary Fund was not sufficiently repentant despite the release on January 19 of its internal review of IMF-Supported Programs in Indonesia, Korea and Thailand. While Hubert Neiss, the Fund’s Asia Director did grudgingly admit that legitimate questions could be raised about the timing of its macroeconomic policy prescriptions, he continued to insist that the Fund had both been flexible and responsive and had made efforts from the start to adjust its policy prescriptions to the changing situation. Moreover, he insisted that the basic IMF policy and strategy had been right although its implementation had not been perfect and there had been some errors of judgement. It was clear that even these words were difficult for Mr. Neiss to utter----he clearly is a man who is much more comfortable with numbers and charts than human beings and social policy issues. He is equally unaccustomed to saying sorry.
The only announcement he made in Bangkok which may be indicative of how his leadership of the IMF’s Asian "rescue" packages is being viewed inside the Fund is that of his retirement in January 2000. This was widely quoted in the Thai English language dailies together with both front page and editorial critiques of the "rescue" packages and the Prime Minister of Thailand’s reluctant admission, in the face of the IMF’s internal review findings, an impending censure debate in Parliament in the last week of January and a delegation of senators on its way to the US and IMF to oppose some of the Fund’s conditionalities related to controversial bankruptcy and foreclosure bills which are currently before the Thai Parliament, that the IMF had got it substantially wrong even for Thailand, its star pupil!
Peter Heller, Deputy Director for Fiscal Policy at the IMF and supposedly its human face at the conference made things worse for the Fund. First, he insisted, without convincing a lot of people present, that the IMF had been concerned about the human dimensions of its policy prescriptions for over a decade, during which it had conducted a dialogue on the social dimensions of macroeconomic adjustment, including with many NGOs. This public statement was viewed as both disingenuous and dishonest by many people present.
He then went on to say that the initial contractionary fiscal budgetary surplus targets demanded by the Fund had never been implemented by governments in the region and that, therefore, the subsequent recession could not be blamed on the IMF.
But this begs at least two questions even if you accept Dr. Heller’s proposition (which I do not, at least for Thailand, where a number of budgetary cuts were made to allow the country to attempt to meet the 1% GDP surplus target which was the IMF’s initial prescription): first, even if these targets were not implemented, their announcement sent signals to all types of market and other actors who took, often, negative investment and other decisions on the basis of it. Second, if the economic contraction in these countries was so great even in the absence of the implementation of the original fiscal budgetary targets stipulated, then the Fund must have clearly got the extent of the depth of the crisis even more substantially wrong than the fears of many of its worst critics!
The now commonplace criticisms of the Fund’s response in East Asia were frequently articulated by both panellists and participants at the conference. Indeed, these came from even unlikely sources such as USAID’s Deputy Assistant Administrator, Robert Randall, who appears to share the general criticism of the Fund’s handling of the asian crisis. When Dr. Herman Haeruman, Deputy for Regional Development at BAPPENAS, Indonesia, another panel speaker on the second day, said that he would blame the IMF 30% for the crisis and its aftermath in his country, Mr Randall, in the opening remarks of his official talk, suggested that Dr. Haeruman was, perhaps, being too generous to the IMF.
The World Bank, on the other hand, will have to grapple with a number of crucial issues if it wishes to build on the potentially innovative aspects of the conference. Having now openly acknowledged that its analysis and response was wrong in many areas and that it does not understand many of the complexities of the crisis and its social impacts even now but that it does recognise the clear linkages between macroeconomic policies and social policy, it must, at a minimum,:
Consciously seek to involve civil society organisations in matters of economic policy and not succumb to the temptation, evident even at last week’s conference, to limit the NGO input to social policy issues.
Play a more dominant role vis-a-vis the Fund on macroeconomic policy responses and demonstrate and monitor their linkages and impacts on social policy issues.
Redefine its objectives to subordinate macro and other economic policy making to social policy goals.
Be much clearer about what the purpose of its proposed six monthly meetings on social policy are. Until that happens, and there is a more substantial shift in the Bank’s approach to both economic and social policy making, based on learning the correct lessons from the crisis, it is unlikely that civil society organisations will come to the table, especially as co-sponsors of such future World Bank meetings.
* Kamal Malhotra is co-director of Focus on the Global South and a member of the international steering committee of the tri-partite civil society, government and World Bank Structural Adjustment Programme Review Initiative (SAPRI).