ABSTRACT
A number of recent studies (Park 2007; Park and Wyplosz 2008; Takagi 2008) show that the IMF erred in several ways in its management of the 1997 to 1998 Asian crisis. One was the failure to identify ex ante the structural vulnerabilities of the crisis-affected countries that had made them susceptible to a financial crisis – weaknesses of both the financial and corporate sectors and macroeconomic policies that prevented speedy adjustment to external shocks. Instead of warning about their vulnerability, the IMF was giving misleading information on the prospects of the economies that were about to be swept over by a crisis. For instance, the Staff Report of the 1997 Article IV consultation with Indonesia, which was released in June of the same year, stated that contagion of the Thai crisis would be limited, that Indonesia’s economic fundamentals were sound, and that the prospects for maintaining development momentum were promising (Takagi 2008). The 1997 Article IV consultation for Korea, which took place a month before the country was engulfed in a crisis, was very sanguine about Korea’s future economic prospects as it concluded that the country was well prepared to deal with further external pressure.3
