Front Matter

Front Matter

Author(s):
Kevin Barnes, Ali Mansoor, Benjamin Cohen, and Shinji Takagi
Published Date:
September 2003
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    © 2003 International Monetary Fund

    Production: IMF Multimedia Services Division

    Cover: Martina Vortmeyer

    Figures: Theodore F. Peters, Jr.

    Typesetting: Alicia Etchebarne-Bourdin

    Cataloging-in-Publication Data

    The IMF and recent capital account crises: Indonesia, Korea, Brazil—[Washington, D.C.]: International Monetary Fund, 2003

    p. cm.

    “Evaluation Report.”

    Includes bibliographical references.

    ISBN 9781589061880

    1. Capital movements—Indonesia. 2. Capital movements—Korea. 3. Capital movements—Brazil. 4. International Monetary Fund—Evaluation. I. International Monetary Fund. Independent Evaluation Office.

    HG3891.I45 2003

    Price: US$25.00

    Please send orders to:

    International Monetary Fund, Publication Services

    700 19th Street, N.W., Washington, D.C. 20431, U.S.A.

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    Contents

    The following symbols have been used throughout this report:

    – between years or months (e.g. 2000–01 or January–June) to indicate the years or months covered, including the beginning and ending years or months;

    / between years (e.g. 2000/01) to indicate a fiscal (financial year).

    “Billion” means a thousand million.

    Minor discrepancies between constituent figures and totals are due to rounding.

    Some of the documents cited and referenced in this report were not available to the public at the time of publication of this report. Thus, they have not been listed in the bibliography. However, under the current policy on public access to the IMF’s archives, some of these documents will become available five years after their issuance. They may be referenced as EBS/YY/NN and SM/YY/NN, where EBS and SM indicate the series and YY indicates the year of issue. Certain other documents are to become available ten or twenty years after their issuance depending on the series.

    Foreword

    This report, The IMF and Recent Capital Account Crises, is the second evaluation report produced by the Independent Evaluation Office (IEO). The report focuses on the role of the IMF in three recent currency crises in Indonesia (1997–98), Korea (1997–98), and Brazil (1998–99).

    The three cases exemplify the new type of balance of payments crisis, characterized by a sudden reversal of capital flows, which are increasingly seen as posing special risks for emerging market countries. All three cases have been the subject of considerable debate both within and outside the IMF and, in revisiting these episodes, this report covers ground that will be familiar to many readers. However, it also brings a fresh perspective because of the IEO’s access to internal IMF documents which cast new light on various aspects of each crisis, both in the buildup to the crisis and in the crisis management phase.

    The primary purpose of the evaluation, in keeping with the IEO’s mandate, is to draw lessons for the future. The report therefore recommends a number of steps aimed at making the IMF’s surveillance and program design more effective in the prevention and management of future capital account crises. The report recognizes that many important lessons have already been learned from the cases studied and a number of changes have been made in IMF procedures and policies. The recommendations in the IEO report seek to build on the many steps already taken.

    The preparation of the report followed the IEO’s established procedures. A draft issues paper was posted for comments on the IEO’s website (www.imf.org/ieo) and was later revised, on the basis of inputs from a range of groups and individuals, to form the final terms of reference for the evaluation. This was posted on the website and interested parties were invited to submit material relevant to items included in the terms of reference. Several seminars were held to interact with outside experts and stakeholders and comments on early drafts were obtained from staff. The final IEO report, as approved by the Director, was submitted to management for comments and also circulated simultaneously to Executive Directors. The report was discussed in the Executive Board on May 30, 2003, along with comments from management and staff.

    In line with IEO procedures, the report, as discussed in the Board, is being published along with the Summing Up of the Executive Board discussion by the Acting Chair and the statements by management and staff to the Board. The staff statement draws attention to positive developments in Indonesia and Brazil in the period following the end of the programs covered by this report. The IEO was precluded from evaluating these developments because our mandate does not allow us to review ongoing programs.

    Montek S. Ahluwalia

    Director

    Independent Evaluation Office

    The IMF and Capital Account Crises: Indonesia, Korea, Brazil

    The report was prepared by a team headed by Shinji Takagi and including Ali Mansoor, Kevin Barnes, and Benjamin Cohen. The team was assisted by Afonso Bevilaqua, Stephen Grenville, Mohamad Ikhsan, Jai-won Ryou, and Takashi Shiraishi; sections of the report have also benefited from comments and other inputs from Jeffrey Frankel, Takatoshi Ito, Yung Chul Park, and David Peretz. However, the final judgments are the responsibility of the IEO alone. Research assistance from Misa Takebe, Shauqie Azar, Minkyung Kim, and Leandro Rothmuller; administrative support by Annette Canizares, Arun Bhatnagar, and Florence Conteh; and editorial work by Ian McDonald and Esha Ray are gratefully acknowledged.

    The Independent Evaluation Office (IEO) was established by the International Monetary Fund’s Executive Board in July 2001. The office operates independently of IMF management and at arm’s length from the IMF’s Executive Board. Its mission is to provide objective and independent evaluation of issues related to the IMF’s mandate and thereby support the Executive Board in its governance and oversight responsibilities, to contribute to enhancing the learning culture of the IMF, and to promote understanding of the IMF’s work.

    Abbreviations and Acronyms

    ADB

    Asian Development Bank

    APD

    Asia and Pacific Department (IMF)

    APEC

    Asia-Pacific Economic Cooperation

    ASEAN

    Association of South East Asian Nations

    BCBS

    Basel Committee on Banking Supervision

    BI

    Bank Indonesia

    BIS

    Bank for International Settlements

    BLBI

    Bank Liquidity from Bank Indonesia

    BOK

    Bank of Korea

    BPK

    Supreme Audit Agency (Indonesia)

    CBA

    Currency board arrangement

    CCL

    Contingent Credit Line (IMF)

    CD

    Certificate of deposit

    CPMF

    Financial transactions tax (Brazil)

    EFF

    Extended Fund Facility (IMF)

    EMEAP

    Executives’ Meeting of East Asia–Pacific Central Banks

    ERM

    Exchange rate mechanism

    FDI

    Foreign direct investment

    FSAP

    Financial Sector Assessment Program (IMF)

    FSC

    Financial Supervisory Commission (Korea)

    FSS

    Financial Supervisory Service (Korea)

    G-7

    Group of Seven countries

    GDP

    Gross domestic product

    IBRA

    Indonesian Bank Restructuring Agency

    ICM

    International Capital Markets Department (IMF)

    IDB

    Inter-American Development Bank

    IEO

    Independent Evaluation Office (IMF)

    IFI

    International financial institution

    IIF

    Institute of International Finance

    IMF

    International Monetary Fund

    INDRA

    Indonesia Debt Restructuring Agency

    ITC

    Investment trust company (Korea)

    JIBOR

    Jakarta interbank offered rate

    KAMCO

    Korea Asset Management Corporation

    KDB

    Korea Development Bank

    KDIC

    Korea Deposit Insurance Corporation

    LIBOR

    London interbank offered rate

    LOI

    Letter of intent (IMF)

    LOLR

    Lender of last resort

    MAE

    Monetary and Exchange Affairs Department (IMF)1

    MEFP

    Memorandum on economic and financial policies (IMF)

    MOF

    Ministry of finance

    MOFE

    Ministry of Finance and Economy (Korea)

    NDA

    Net domestic assets

    NIR

    Net international reserves

    NPL

    Nonperforming loan

    OECD

    Organization for Economic Cooperation and Development

    PC

    Performance criteria (IMF)

    PDR

    Policy Development and Review Department (IMF)

    PEDT

    Private External Debt Team (Indonesia)

    PIN

    Public Information Notice (IMF)

    PSBR

    Public sector borrowing requirement

    PSI

    Private sector involvement

    RES

    Research Department (IMF)

    ROSC

    Report on the Observance of Standards and Codes (IMF)

    SBA

    Stand-By Arrangement (IMF)

    SBI

    Bank Indonesia certificate

    SDDS

    Special Data Dissemination Standard (IMF)

    SDR

    Special drawing right (IMF)

    SME

    Small and medium-sized enterprise

    SRF

    Supplemental Reserve Facility (IMF)

    URV

    Unit of real value (Brazil)

    VAT

    Value-added tax

    WHD

    Western Hemisphere Department (IMF)

    WTO

    World Trade Organization

    Effective May 1, 2003, name was changed to Monetary and Financial Systems Department.

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