The managing director of the International Monetary Fund (IMF), Mr Horst Kohler, said yesterday that the IMF had "a lot to learn" about preventing financial crises. Speaking in Japan, Mr Kohler said the Fund was now more humble about giving advice to its borrower countries, pointing to the failure to prevent the financial crisis in Latin America.
"To resolve home-grown problems, no external advice, however sound, and no amount of external financing can substitute for self-responsibility and political cohesion in a society," he said.
But he urged faster reform in Japan, calling on the authorities to dispose of bad loans in the banking sector and support the economy with aggressive expansion of the money supply. Following meetings with Japanese officials, Mr Kohler said: "My major message is: 'There has been enough muddling through and it's time for decisiveness and implementation'."
On the global economy, Mr Kohler was measured, reiterating the concerns of the Group of 10 central bankers earlier this week but playing down the risk of a double-dip recession. There were welcome signs Japan was emer-ging from recession, but this still remained dangerously dependent on developments in the US.
Mr Kohler's admission that the Fund did not have all the answers appeared to be an attempt to mollify IMF critics in east Asia, where a legacy of distrust remains because of the fund's role in the 1997-98 financial crisis. He said there had been a "near-revolution" in transparency at the IMF, and that the fund was more cautious about encouraging countries to open their capital accounts. "The fact that it was not possible to avoid the current difficulties in Latin America suggests that we still have a lot to learn," he said.
The IMF's annual meeting, to be held in Washington in three weeks, will consider the campaign led by the fund to re-engineer the international financial system, and in particular its plan to institute a new insolvency process for bankrupt governments. Mr Kohler yesterday reiterated the IMF's determination to press ahead.
