IMF and "Deja Voodoo" in South Korea

Nov 18, 2005
by Soren Ambrose

The IMF and "Deja Voodoo"* in South Korea

South Koreans in the audience at the press conference described below might have thought they had walked into a macabre comedy routine. The IMF earned the hatred of most South Koreans during the 1997-98 East Asian financial crisis for insisting, among many other things, that interest rates be raised as the country slipped into crisis. That policy, in fact, was the subject of a landmark 1998 report from the World Bank (authored by its then-Chief Economist, Joseph Stiglitz), which accused the IMF's policy on interest rates of precipitating an unnecessary major recession, marked by skyrocketing unemployment. So a guffaw or two could have been excused at the audaciousness of an IMF official coming to South Korea in 2005 to say that the good health of the Korean economy meant that "of course it will be necessary to raise an interest rates." The routine could perhaps have been called "The IMF Returns: Deja Voodoo Economics!"

This account of coverage of the official's remarks comes from the IMF's own news summary (November 17 2005, reproduced in its one-paragraph entirety): "South Korea's economic recovery is 'underway' and growth should accelerate next year, an IMF official said today, Bloomberg reported from Seoul. 'Economic activity began to revive in the early part of 2005, and has accelerated steadily throughout this year, reaching a robust rate during the third quarter,' the Fund said in a statement released in Gwacheon, South Korea. Strikingly, this recovery has been led by private consumption, which revived after remaining dormant for almost two years. The fund said the country's economy was likely to grow 5% next year after expanding 3.8% in 2005. 'Of course, if the recovery proceeds as we projected, it`ll be necessary to raise interest rates,' Joshua Felman, IMF Asia and Pacific Department Assistant Director, said at a press briefing."

But maybe this is nothing more than following up on the IMF's promise to "show the yellow card" (in lieu of exercising its accustomed "absolute power") made in the wake of the East Asian financial crisis. That pledge was made by none other than the IMF's then Managing Director, Michel Camdessus, who was refreshingly free of the tact the institution's officials have developed in recent years. The following is from an AFP article in 1999:

"'The fact that they (the Koreans) are not asking us for funding does not exempt them from taking steps which are in their own interest,' he said. The IMF head warned that if the improvement in the economic situation deprived the Fund of the 'absolute power' it had exercised through financial help, he still reserved the right to show the 'yellow card' with market warnings.

'We will show it whenever needed. Showing the yellow card is essentially just that. The signals we give to a country, those are the signals we give to the market. And countries know very well that the recovery in their credit standing is fragile and they cannot allow open warfare with the IMF.'" (AFP, "IMF ready to flash the yellow card on Asian reform: Camdessus," May 19, 1999)

- Soren Ambrose, 50 Years Is Enough Network & Solidarity Africa Network in Action

*A long explanation for this phrase: This is a pun - not mine originally, alas -- playing on the French phrase "déjà vu" ("already seen"), which is used to describe the sensation that you have already experienced the present moment. The pun originally referred to a return to policies mirroring Pres. Reagan's neoliberalism - policies which were famously referred to in the 1980 campaign for the Republican nomination as "voodoo economics" by his chief opponent, George H.W. Bush, who went on to become Reagan's Vice President, then President, then the aged parent of the current abomination.

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