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Response of Mr. Bhaswar Mukhopadhyay, IMF Resident Representative in KR, to Mr. Timirbaev’s article, “The Fund that is Incapable of Acknowledging its Mistakes”, in MSN, December 2, 2003 January 8, 2004 Dear Mr. Kim: I am writing in response to Mr. Timirbaev’s article, “The Fund that is Incapable of Acknowledging its Mistakes”, in the December 2 edition of your newspaper. In this article, the author makes several assertions that are not supported by the facts. Specifically, he accuses the IMF of being disingenuous in noting favorably recent macroeconomic developments in the Kyrgyz Republic, he questions the quality of Fund advice in other parts of the world, and he accuses the IMF of neither acknowledging nor learning from its mistakes. I would like to take this opportunity to discuss each of these assertions in turn. In the last four years macroeconomic policy in the Kyrgyz Republic has improved significantly. The budget deficit has been lowered from about 12 percent of GDP in 1999 to 5½ percent in 2002. The annual inflation rate has been lowered from 40 percent in 1999 to the low single digits in each of the last three years. The exchange rate has remained broadly stable against major world currencies and the country’s gross international reserves have almost doubled since 1999. Exports have acquired resiliency, growing even in the face of adverse shocks in the gold and energy sectors in 2002. As a result, the Kyrgyz Republic has experienced average annual real GDP growth of about 4 percent, and the rate of poverty has declined from 55 percent in 1999 to 44 percent in 2002. The Managing Director of the IMF, Mr. Kohler, last visited the Kyrgyz Republic in 1999 in his capacity then as President of the EBRD. Is it really so surprising that he would note and acknowledge the improvement in macroeconomic conditions that have taken place since that time? Despite these achievements the country faces severe economic problems. In particular, lowering the unacceptably high poverty rate will require sustained high rates of real GDP growth for the foreseeable future. For this, a first class investment climate, exorcized of governance problems and secure access to international trading markets is a prerequisite. The Managing Director recognized the serious impediments the country faced from the trade barriers in neighboring countries. He promised President Akaev that he would seek support for bringing down these barriers. And not only from the multilateral agencies, on his return to Washington, but also from the Presidents of the neighboring countries in his meetings with them later in his trip. In asking for such support, does Mr. Timirbaev really believe that it was disingenuous of the Managing Director to discuss the Kyrgyz Republic’s growth prospects with President Putin and President Nazarbaev? Mr. Timirbaev’s criticisms of the Fund’s policy advice in other countries also lacks substance. He seems to insinuate that financial crises in Latin America, East Asia, Russia and Turkey were brought on by policies advocated by the Fund. Nothing could be further from the truth. At the onset of the crises, none of the countries mentioned had a program with the IMF. They only approached the Fund for assistance after they were in the midst of a crisis. As to what followed, there is clear evidence that Fund policy advice was instrumental in resolving the crises. Countries which took ownership of the reforms advocated by the Fund recovered much quicker than the ones that wavered. A good example is South Korea. It is striking that just three years after the onset of the crisis real GDP was 12 percent higher than pre-crisis levels. There are many other cases, but it will suffice to say that Fund policy advice is based on the most current thinking in macroeconomics and, notwithstanding a handful of very vocal critics, enjoys broad support from professional economists. This is not to say that the Fund does not make mistakes. It does, particularly since its policy advice is often developed under the intense pressure of economic crisis. But what is important is that the Fund has learned from its mistakes during the past 60 years and has not been afraid to take decisive corrective action when warranted. For example, the Asian crisis highlighted the need to strengthen the IMF’s surveillance of emerging market economies. Thus, an International Capital Markets Department was established at the IMF and considerable thought is devoted on an ongoing basis to determining early warning signals of economic crisis in member countries and regions. To promote better surveillance the Fund has also sought to improve the information base in member countries, and its work program routinely includes assessments and recommendations on members’ financial sectors, fiscal systems and statistics. In the Kyrgyz Republic, for instance, all three assessments have been completed and the related recommendations are based on the learning process the Fund has gone through during the past 12 years while working with all transition countries of central Europe and the former Soviet Union. The dramatic change in the Fund’s transparency policy in recent years has met with universal approval. Today the Fund shares information on all aspects of its work with the public at large and virtually all its documents are posted on its external website (http://www.imf.org). Fund staff also regularly speak to the press and to civil society representatives in order to be better informed about country specifics and to engage in a more meaningful debate on economic policies. On this I might quote, Ann Pettifor, who was previously associated with Jubilee 2000, the internationally well known NGO advocating multilateral debt relief for highly indebted low-income countries, and a consistent critic of the Fund. She noted the Fund’s “intellectual confidence” in using “an open and transparent participative process”, and more generally, praised the Fund for seeking the views of civil society organizations. Finally, the Fund also subjects itself to formal independent scrutiny.
Its Independent Evaluation Office (IEO), headed by the former Finance
Secretary in the Government of India, has already conducted reviews
on a number of issues. Its analysis and In closing, I was greatly amused to find Mr. Timirbaev leaning on both Joseph Stiglitz and Milton Friedman to buttress his criticism of the Fund. Perhaps he is unaware that the critique of Professor Stiglitz (“free markets are not always perfect”) is in direct contradiction to the efficiency of unfettered markets preached by Professor Friedman. Mr. Timirbaev’s attempt to “eat his cake and have it too” demonstrates an unfortunate lack of understanding of the issues at hand. It would be very easy for me to quote any number of economists, just as eminent as Professors Stiglitz and Friedman, that would disagree entirely with the views expressed by one or both of them. However, I firmly believe that a debate based on the facts would be a lot more compelling for your readers than the intellectual bankruptcy implicit in pursuing a “let’s throw the kitchen sink” approach of criticizing the IMF. Nevertheless, I appreciate your paper’s efforts to instill an economic policy debate in Kyrgyzstan and look forward to a healthy and professional debate in the future. Sincerely yours, Bhaswar Mukhopadhyay
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