This paper will deal with the behaviour of the International Monetary Fund during the financial crises in Asia of the 1990s and the current financial crisis in Europe. The main interest lies in whether the political environment in Europe with the third party European Union (EU) and the institutions of the euro area causes a different incentive and power structure leading to a different behaviour on the part of the IMF in the European crisis when compared to the Asian crisis.
In Asia, the IMF was confronted with a more or less conventional regional financial crisis and it put together an individual programme for every country asking for help. In Europe on the other hand the EU represents a new, supranational, sovereign institution that has power over its member states and has become the linchpin when dealing with the European financial crisis. My thesis is that the EU-institutions (most notably the Council of the European Union, the European Commission and the European Central Bank) took over the role the IMF had in the Asian crisis and now act as the authorities that link the financial aid to conditionalities while the IMF is marginalized into the simple task of providing financial assistance
What the paper doesn ́t want to do:
No assessment of the failure or success of the IMFs rescue packages for the Asian and European countries will be given. This goes beyond the initial interest and in case of the European crisis it is too early to assess as the crisis is still ongoing. Furthermore, the paper will abstract from the differences between the crises in Asia and Europe in terms of economic difficulties (exchange rate crisis, crisis of the financial sector, debt crisis). I think this is reasonable considering the focus does not lie on which kind of rescue programmes have been established, but on how the IMF behaved in the process of crisis management.
The main part is divided in one segment for the Asian crisis and one for the European crisis. In both I will answer the same three questions: a) which actions were taken by the IMF? b) what did the institutional environment in which the IMF acted look like? and c) how did the IMF behave and how can this behaviour be explained? By focussing on these three points I will be able to draw a line between the Asian and the European financial crisis and explain why the IMF behaves differently today in Europe than it did in the 1990s in Asia. In a concluding chapter I will summarize my results.
Table of Contents
1. Introduction
2. Comparison of the two financial crises
2.1 The Financial Crisis in Asia
a) Which actions did the IMF take?
b) What did the institutional environment in which the IMF acted look like?
c) How did the IMF behave and how can this behaviour be explained?
2.2 The Financial Crisis in Europe
a) Which actions did the IMF take?
b) What did the institutional environment in which the IMF acted look like?
c) How did the IMF behave and how can this behaviour be explained?
3. Conclusion
Research Objectives and Key Topics
This paper examines how the International Monetary Fund's (IMF) behavior in crisis management has shifted from the Asian financial crisis of the 1990s to the current European financial crisis, specifically investigating how the presence of European Union institutions has altered the IMF's power and incentive structures.
- Evolution of IMF intervention strategies in regional crises.
- Comparison of the institutional environments in Asia and Europe.
- The impact of supranational EU institutions on IMF authority.
- Analysis of the "Troika" mechanism and its influence on crisis management.
- The shifting role of the IMF from central authority to marginalized financial contributor.
Excerpt from the Book
2.1 The Financial Crisis in Asia
The countries that were struck the most by the Asian financial crisis were Thailand, Indonesia and South Korea. Besides these, Malaysia, the Philippines and Singapore were also affected. Four characteristics, shared by all the countries, preconditioned the Asian crisis: a) very high rates of domestic savings, intermediated form households to firms via banks, creating a deep structure of domestic debt, b) more or less strictly fixed exchange rate regimes creating the perception of little risk in moving funds from one market to another, c) liberalization of capital markets in the early to mid-1990s and deregulation of domestic financial systems, without a compensating system of regulatory control and d) vast international inflows of financial assets creating a deep structure of foreign debt. So the consequences were simultaneous domestic and foreign debts combined with underestimated risks of capital flows due to the overrated currencies and insufficient regulation and monitoring (Wade 1998, 1540-1541). The Asian Financial Crisis started and spread in Thailand. Because of the increasing pressure on the Thai baht it had to be floated in July 1997. What followed the Thai float was a domino of the currencies in the region. All of them depreciated sharply and had to be floated. In this way the crisis spread from one country to the next and the IMF had to step in and provide financial support (cf. Ito 2007).
Summary of Chapters
1. Introduction: This chapter establishes the thesis that EU institutions have constrained the IMF's role in Europe, contrasting this with the Fund's historically more dominant position during the 1990s Asian crisis.
2. Comparison of the two financial crises: This section provides a detailed comparative analysis of the Asian and European financial crises, focusing on IMF actions, the institutional environment, and the resulting behavioral patterns of the Fund.
3. Conclusion: This chapter summarizes the findings, confirming that the emergence of the EU and its financial instruments has marginalized the IMF and forced a shift in its crisis management strategy.
Keywords
International Monetary Fund, IMF, Asian Financial Crisis, European Financial Crisis, Troika, European Union, EU, EFSF, ESM, Conditionality, Crisis Management, Eurozone, Financial Architecture, Structural Reforms, Austerity
Frequently Asked Questions
What is the fundamental focus of this research paper?
The paper focuses on comparing the behavioral shifts of the IMF during the Asian financial crisis of the 1990s and the ongoing European financial crisis, specifically evaluating how its role has been impacted by regional political structures.
What are the central thematic areas of the study?
The study centers on the interaction between international financial institutions, the specific role of the IMF in regional crises, the institutional influence of the EU, and the evolving power dynamics within the "Troika" framework.
What is the primary research objective?
The primary goal is to determine whether the political environment in Europe, dominated by the EU and its institutions, has caused the IMF to adopt a different incentive structure and behavioral approach compared to its intervention in Asia.
Which scientific methodology is employed?
The author employs a comparative qualitative analysis, examining specific institutional frameworks and IMF actions in both Asian and European crises to test the hypothesis of IMF marginalization.
What is covered in the main body of the work?
The main body breaks down the analysis into two distinct segments—one for Asia and one for Europe—answering identical questions regarding the IMF's actions, the institutional environment, and the explanations for its behavior in each context.
Which keywords best characterize this work?
The work is best characterized by terms such as IMF, Eurozone crisis, European Union, Troika, financial architecture, and conditionality.
How does the role of the "Troika" influence the IMF's independence?
While the IMF maintains that its decisions are made independently, the paper argues that its cooperation within the Troika has led to a perceived and practical loss of influence and a risk of marginalization.
Why did the IMF's relationship with European partners change over time?
Initially, the IMF collaborated smoothly with European partners; however, as the crisis worsened and the ESM was established, the Fund began to struggle for influence and initiated a more critical stance toward European institutions to regain authority.
What role does the European Stability Mechanism (ESM) play in the author's argument?
The author identifies the ESM as a key factor in the marginalization of the IMF, as it allows the European authorities to take over the role of lender, effectively bypassing the Fund's traditional influence.
- Quote paper
- Maria Krummenacher (Author), 2012, A Comparison of the Behaviour of the IMF in the Asian and European Financial Crises, Munich, GRIN Verlag, https://www.grin.com/document/231263
