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Doubt greets IMF bailout offers

The fund seeks to soften effects of the financial collapse, but many Asian leaders – citing bad advice from the '97 crisis – are wary of conditions attached to assistance.

By Correspondent of The Christian Science Monitor / November 21, 2008

Bangkok, Thailand

As the global credit crunch bites hard, the list of countries seeking emergency aid from the International Monetary Fund grows ever longer: Hungary, Ukraine, Iceland. This scramble for funds has raised questions over the size of the IMF's war chest for further bailouts as more developing countries run short of hard currency.

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The IMF says it has $200 billion in reserves and can tap an additional $50 billion credit line. At last weekend's G-20 summit in Washington, billed as an effort to recast global financial institutions for a new era, calls for a topping-off largely fell on deaf ears, with only Japan pledging an additional $100 billion.

IMF officials have warned that the latest loan package for Iceland, finalized Wednesday, won't be the last in what it calls a deep global crisis.

More money will likely be found, says Edwin Truman, a senior fellow at the Peterson Institute for International Economics in Washington. "In the end, they will get the money. The [global financial] system will not let the fund run out of money," he says.

[An IMF spokesperson in Tokyo declined to comment on funding commitments.]

A thornier question is who puts in new money and what that means for an institution closely associated with Western powers. Just as the G-20 gathering represented a shift in the global financial order, a more inclusive IMF would have to make room for rising economies like China and Brazil. Its current board is dominated by the US, Japan, and European creditors.

British Prime Minister Gordon Brown said last week that countries sitting on surpluses, including oil-rich Gulf nations, should contribute more to the IMF. But Saudi Arabia publicly rejected the argument. Chinese President Hu Jintao also demurred, saying China's main contribution to financial stability is to prime its economy as an engine of global growth.

Behind the scenes is a tussle over how the IMF, World Bank, and other institutions are managed. "Realistically, in order to go much further [in IMF reforms], those countries who would contribute more would want a bigger say in running the institution," says Brad Setser, a fellow at the Council on Foreign Relations.

With the exception of troubled Pakistan, until now there have been no takers in Asia for an IMF bailout, despite warning signals in financial markets. In recent days, leaders in Indonesia and South Korea, which are struggling to prop up their currencies and restore confidence, have both explicitly ruled out going to the IMF for help – the idea carries bitter memories of the Asian financial crisis in 1997-98 that many policymakers believe was worsened by bad economic advice from the IMF.