Fighting Financial Fires: An IMF Insider Account by Onno de Beaufort Wijnholds

By Onno de Beaufort Wijnholds

A topical insider view of factors and results of economic crises because the Mexican cave in of 1995. The e-book incorporates a detailed exploration of modern and ongoing firestorms, together with the close to meltdown of the worldwide economy and the euro crisis, and indicates how one can store the overseas monetary and financial process.

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Fighting Financial Fires: An IMF Insider Account

A topical insider view of factors and results of economic crises because the Mexican cave in of 1995. The e-book encompasses a detailed exploration of modern and ongoing firestorms, together with the close to meltdown of the worldwide economic system and the euro crisis, and indicates how one can keep the foreign monetary and financial process.

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Domestic savings reached a healthy level of around 34 per cent by the mid-1990s, slightly lower than in Korea, but some 10 per cent of GDP higher than in the Philippines, where economic growth was commensurately lower. The state budget was roughly in equilibrium and the external debt service of Indonesia a manageable 21 per cent of exports of goods and services. Behind this rather bright picture lurked a darker reality. A number of distortions and imbalances, not always visible, constituted a weak element in the economy.

Another problem was caused by excessive borrowing in foreign currencies by private corporations, which were facing ruin as the rupiah dropped like a stone. Foreign banks, which provided the money, should have been involved earlier to negotiate an orderly workout. Eventually an agreement of this kind was reached, but in the meantime economic activity had been dealt a severe blow. While the international organizations should, in retrospect, have pushed for a speedier debt restructuring, they generally lacked sufficient information to reach a better outcome, as their counterparts in Djakarta were initially displaying little cooperation.

The first, and most simple, was laissez faire, where it is left entirely to markets to solve the problem. This I discarded as excessively risky and inconsistent with the central role of the IMF in the international monetary system. A second approach would be a full bailout, as took place in the Mexican case. But providing full IMF financing in order to avoid defaults (as happened in the case of the Mexican tesobonos) introduced excessive moral hazard. Under a third approach, financing would be provided in combination with an orderly workout to reduce an unsustainable debt burden.

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