Analysis: Aid recipients welcome IMF's shift on austerity

Sun Oct 14, 2012 5:43pm EDT
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By Emily Kaiser and Sophie Knight

TOKYO (Reuters) - Graduates of IMF emergency loan programs accepted the Fund's admission that it miscalculated the cost of austerity with a mix of schadenfreude and frustration that the change came too late to spare them economic pain.

Countries such as Argentina, Indonesia and South Korea, which were required to make deep budget cuts in exchange for tens of billions of dollars in International Monetary Fund aid, said the lending institution was finally learning from mistakes made during financial crises in Asia and Latin America.

"People learn from what happened in the past," said Indonesia's Trade Minister Gita Wirjawan. "Certainly what we went through in 1998 was painful. I lived through that, and hopefully the... difficulties we went through served as lessons."

Indonesia signed a $10 billion IMF loan deal in 1997 as the Asian financial crisis raged, and started an economic program that called for spending cuts, tax increases, bank closures and tight monetary policy which the IMF predicted would limit the downturn.

Indonesia's economy ended up contracting by 13 percent in 1998, nowhere near the IMF's forecast for 3 percent growth.

Former IMF Managing Director Dominique Strauss-Kahn admitted in 2010 that the lending institution had made "mistakes" in Asia.

Last week, the Fund released research showing that the economic damage from aggressive austerity measures may be as much as three times larger than previously assumed.

"Advice is sometimes difficult - both giving and receiving," current IMF head Christine Lagarde said in a speech at the start of the group's meetings in Tokyo on Friday.   Continued...