In addition to needlessly undermining the confidence of global lenders, Feldstein says the IMF attempted to make radical changes in the basic economic structure of countries while they were in the midst of currency crises. The fund required Asian governments to institute monetary policies which contract the economy by reducing the money supply, and fiscal policies that close budget deficits by cutting spending and raising taxes. Feldstein says:

• The affected Asian economies are fundamentally sound -- with remarkable long-term growth of both gross domestic product and exports.

• Their problems could have been solved less painfully through modest adjustments which would have allowed them to earn extra foreign exchange to repay foreign debts.

• They suffered from temporary illiquidity -- a shortage of cash -- not insolvency.

Feldstein would like to see the IMF play a positive role in future crises by coordinating the rescheduling of international obligations between creditors and debtors. It should, in his view, create a collateralized credit facility that lends foreign exchange to governments which are temporarily illiquid but internationally solvent.

Source: Martin Feldstein (Harvard University), "Focusing on Crisis Management...," Wall Street Journal, October 6, 1998.