By Ramesh Thakur

The IMF's approach has been criticized on five counts.

It turned out to be a bailout of international creditors rather than of afflicted countries. The burden of adjustment fell heavily on local institutions and people. Foreign creditors were rescued from the market consequences of persistent miscalculation of risk and misallocation of resources.

The real ''moral hazard'' lay in bailing out the perpetrators of the problem while putting many innocent bystanders out of work and into poverty through tough fiscal and monetary policies.

These policies were excessively contractionary. The IMF called for higher interest rates, price stability, government spending cuts, and no bailout of troubled firms. Companies and banks collapsed under the weight of the deflationary fiscal and monetary policies.

The austerity measures deepened self-fulfilling investor panic instead of easing it. They also turned what had originally been sound investment projects into problematic ones by feeding the cycle of self-sustaining decline in asset prices.

The doctrinaire squeeze on central bank credit and budget deficits was based on the diagnosis of the ailment that had afflicted Latin America a decade earlier - government profligacy. Its main symptoms were high budget deficits and public sector debts.

Yet in East Asia in 1997, monetary policies were sound, budgets were in surplus, current account deficits were under 5 percent of GDP (except for Thailand), and savings rates were high.

The main problem was crony capitalism, not crony socialism - private, not public, sector debt; misallocated investment, not excessive consumption or inadequate saving; and a crisis of confidence amid sound economic fundamentals.

Asia required counter-recessionary policies and selective aid to local financial institutions to minimize economic slowdown and restore confidence. Many East Asian economies have either slid into recession or are slowing sharply.

As the currency collapse across the region outstripped the economic remedies prescribed by the IMF, governmental and popular faith in the Fund was greatly eroded. Many Asians concluded that the crisis had worsened because of, not despite, the bailout packages.

IMF policies are seen as an attack on economic sovereignty. Governments fear that allowing foreign companies uncontrolled equity ownership and market access will lead to the takeover of local enterprises and the domination of national economies by foreign firms.

The ''Asian'' growth model produced prosperity through a state-influenced system of close cooperation between government, banks and industry acting together in a nation-building enterprise. Successive U.S. governments tried to destroy the model because of its protectionism and dirigisme. Was Asian pain exploited for U.S. gain?

IMF assistance was made conditional on market-opening policies. Since the value of local currencies was low and the market value of local institutions had collapsed, they could be bought at ''fire sale'' prices. The sale of domestic firms and assets to foreigners at bargain basement prices under the direction of the IMF risks provoking a backlash of economic nationalism.

The crisis was exploited to launch liberal market and political revolutions. The legitimacy and stability of East Asia's less than democratic regimes rested on economic growth. As this stalled, popular discontent with governments increased in many countries, strikes or riots occurred in some places, President Suharto of Indonesia was forced to resign after 32 years in power, and there was a general questioning of political authority elsewhere.

In this explosive mix, efforts by the IMF to focus solely on economic fundamentals to the exclusion of social and political reality risked heightening popular discontent, instead of cushioning the pain of ordinary people.

The IMF may well be the only doctor in town for treating currency afflictions. But in the view of some Asian commentators, its only prescription is the medieval one of bleeding the patient until the patient recovers - or dies. The criticism may be unfair, but it is politically potent.

The IMF must accept the reality that the world's financial markets have become integrated. Institutions of international economic management are needed that can cope with multi-country crises and are sensitive to the local conditions, both social and political.

The IMF, the World Bank and to a lesser extent the World Trade Organization are all we have to manage the global economy. Hence the importance that they get it right when things go wrong in countries under their care.

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