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Rutgers Model United Nations - Institute for Domestic and ...

Rutgers Model United Nations - Institute for Domestic and ...

Rutgers

Rutgers Model United Nations 7 was not a concern. The Thais continued to liberalize their financial system through the early and mid-90s at the IMF’s urging, so when the baht began to devalue rapidly due to past IMF policies, it was the IMF’s duty to fix a situation that it had, in part, caused. As a solution, the IMF proposed significant cutbacks in government spending, and a push to merge or close insolvent financial institutions. These measures, however, did not actually serve to assist Thailand in bringing the situation under control, and in fact, slowed consumption to a crawl and undermined the financial infrastructure the IMF was trying to protect. With mandated budgetary cuts, the IMF, who by design has to operate through public institutions, curtailed the ability of public institutions to respond. Public spending suffered, despite the fact that irresponsibility in the private sector caused the issue, actions which the IMF could not control. South Korea’s financial crisis, kicked off by the contagion effect of the Thai crisis, was remarkably similar and the South Koreans, like the Thais, learned that the key to rebounding was regaining the confidence of foreign capital. The difference was that South Korea had massive industrial conglomerates that quickly learned their lessons from their own mistakes and began rebounding. This was something that could only be done by adhering to the strict financial guidelines of IMF loans, even though the IMF had caused the problems in the first place. Additionally, Indonesia had a similarly rougher road. Quickly hit soon after the Thai crisis began, they agreed to a highly structured $46 billion loan intended to help them out of the hole. The loans did not help, however; the conditions in Thailand that made the IMF look so ineffective were even more glaring in Indonesia. The closing of sixteen insolvent banks actually caused bankruptcy in the remaining banks. In the mishandling of the entire crisis, the IMF created for itself a negative reputation at the cost of legitimacy. Policy makers were extremely reluctant to work with such an unpopular institution, as a result, even if such a collaboration was the county’s only chance of economic recovery. Though the IMF ultimately ignored many factors that

Rutgers Model United Nations 8 indicated the impending East Asian Financial panic of the late 90s, this ignorance was not the sole blame for the reluctance of other countries to work with the institution, however. The strict spending control policies that accompanied the IMF bailout loans in all three cases were less than beneficial, and the Fund made itself extremely unpopular. By ignoring the political fallout of its enforced spending cuts, the IMF made itself a political pariah, and hampered its own effectiveness. 9 1998: Russians Suffer from Effects of Asian Financial Crisis In 1998, the Russian Federation announced a gradual devaluation of the ruble, not removing it from the U.S. dollar peg, but devaluing it in reference to the U.S. dollar. The Federation also announced a moratorium on debt repayments for ninety days. This crisis was caused by the Asian Financial Crisis. The Federation’s announcements greatly shook confidence in the Russian financial system, both domestically and in terms of foreign investment. Originally intended to be a gradual devaluation, the Central Bank had little ability to control how quickly confidence bottomed out as currency traders began trading for dollars at whatever price available. The currency devalued so quickly that the Central Bank had to shut down all currency exchange. The Russians received a 22.6 billion USD bailout loan from the IMF after having already spent 8 billion USD trying to support the ruble. With the help of the IMF, the Federation began to recover, but the process of recovery was slow. 10 1999: Turkey and Brazil Deal with Financial Crisis Fallout In 1999, Turkey began entering an economic downturn that many said could severely hamper their emerging economy. Fortunately, Turkey knew ahead of time that there was an impending financial crisis on the horizon, due to the reverberations of the 9 Walden Bello, Nicola Bullard, Mallhotra Kamal, Tamin the Tigers: The IMF and the Asian Financial Crisis, Third World Quarterly; Sep98, Vol. 19 Issue 3, p505-555, 52p 10 BBC News, IMF Talks over Ruble Crisis, August 26 1998, Date Accessed 4/23/08,http://news.bbc.co.uk/1/hi/business/the_economy/159082.stm

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