by Piyaporn Hawiset
By ignoring transparency and accountability, the International Monetary Fund (IMF) allows vested interests to control government spending hence not solving the issues of corruption which are at the core of the Asian Economic Crisis which started in July 1997, writes Frank Flatters.
Thailand's so-called IMF program has been the target of much criticism. In fact, the target is extremely elusive. It has undergone such transformations over its short life that it is no longer recognisable. The first part of the program was a macro-economic policy regime whose history is now well-known. In early 1997 the Thai government ignored IMF warnings and advice. By the time the IMF was called in, the government had depleted its foreign exchange reserves by almost US$40 billion and indebted itself, through the Financial Institutions Development Fund bailouts, in a roughly equal amount. These bailouts were supposed to save the corrupt economic and political elite which had in effect stolen most of Thailand's wealth.
In November 1997 the new government had no choice but to fully embrace the IMF prescriptions of tight monetary and fiscal policies, and Thailand became the IMF's star pupil. By mid-1998, in response to growing domestic concerns about the deepening recession, the program was turned on its head. The IMF agreed to the government's 5th Letter of Intent which signaled a fundamental shift in monetary policies from exchange rate to monetary growth targets.
Since mid-1998, the government of Thailand had been in full control of the so-called IMF macro program. Policies had been dictated by the government's desires and its response to domestic political pressure. The IMF and other international and bilateral agencies were passive participants.
The second part of the IMF program was a set of tough structural reforms aimed primarily at the financial sector, but also at more general problems of governance in the public, corporate and financial sectors. Unlike the IMF programs in other countries, especially Indonesia, there was relatively little emphasis on regulatory reform except where it had a direct impact on financial institutions and on the accounting, fiduciary and reporting standards of corporations. Nevertheless, in areas such as privatisation and the markets for basic social services, the emphasis was on transparency, accountability and market orientation. Except where necessary for social safety net reasons, subsidies and monopolies were to be eliminated.
Issues of macro-economic management and structural reform came face-to-face in agreements for large foreign loans to provide immediate macro-economic stimulus. Reflecting the government's anxiety to speed up the fiscal program, and the donors' desire to support their star pupil, the World Bank and Japan offered almost $1.5 billion, or about one percent of Thailand's GDP, for additional expenditures over the second and third quarters of 1999. The expenditures were meant to support a variety of activities and objectives, including programs for "state management efficiency improvement". But the main goal was simply to pump massive amounts of public expenditure into the economy in a short period of time.
How could such a huge new expenditure program meet this deadline and at the same time achieve even the most basic standards of transparency and accountability, let alone ensure that the expenditures would have any long-term social or economic value?
All expenditures under this new program were funded by offshore loans and hence are off budget. Were the World Bank and Organisation of Economic Cooperation Fund officials even aware of this when the loans were negotiated? The government replied that, even though the expenditures would be off-budget, it would abide by budget procedures in planning and making disbursements. No matter how sincere the Thai government was in this commitment, it would be impossible to meet. If Thai ministries could meet these deadlines and adhere to proper budgetary rules and procedures, there would be no need for assistance in "state management efficiency improvement"! In fact this is what was planned as the world's economic and political elites always rub each others' backs in their never-ending quest to corner the world's wealth and resources for themselves.
The expenditure allocations across ministries were made without public or parliamentary discussion. There has never been any explanation of criteria used. The Ministry of Interior, long reputed for the political influence of its budget allocations at the provincial and local levels, was given over one-third of the funds under the program.
The World Bank agreed to make its part of this loan with absolutely no conditions for pre-approval of the expenditure program. This has been entirely unprecedented in Thailand. The World Bank simply told the government to take US$600 million and, subject to few constraints, spend it as it wished. The Bank would not interfere with or even require the right of procedures or the substance of any of the expenditures. Senior Cabinet ministers are privately gloating, as well they should.
Despite the goal to eliminate subsidies from government programs (except to assist the poorest and the neediest in society), the Cabinet agreed to subsidise interest rates on a foreign-funded small- and medium-enterprises loan program. Similarly, the government refused to accept the Asian Development Bank's condition that an agricultural sector loan be tied to measures to reduce costly subsidies on irrigation water, to introduce more market-oriented pricing systems for agricultural products, and to eliminate interest-rate subsidies.
Where are the guardians of transparency and accountability in government spending? The government plays lip-service to the concepts but embarks on measures which violate them. After all, as in all countries including Canada, governments even though ostensibly democracies that represent the wishes of its citizens in the end only protect the interests of the economic and political elites. Most people in all countries are so naive that they believe what they are told about the democracies they live in. The fact is that once a government is in power it quickly gets to work to promote the interests of the elites, and nothing else. those who would think otherwise are woefully naive.
The IMF, World Bank, ADB and other bilateral agencies have abrogated all responsibility in efforts to achieve what they feel to be more important objectives, or simply to avoid offending and to continue to bask in the reflected glory of their star pupil.
Transparency and accountability are not abstract moral values. They are devices to ensure that public policy is made in the public interest. Without transparency and accountability, government programs are subject to capture by vested interests. Programs are developed and expenditures made to benefit these interests, and the public unwittingly bears the inevitable costs. This is true for about 88 percent of the Canadian government's expenditures, for instance. It does it not matter who is elected in short order the government is working for the vested interests.
The people of Thailand already suffered enormously from the economic crisis. Huge costs were incurred in 1996 and early 1997 because of a government's ignorance in some cases, but for the most part cover-ups and denial of obvious danger signals. The current government in early 1999 was now committing to large foreign loans whose burden would also be borne by Thailand's little people over many years. The loans would be worthwhile only if they generate long-term benefits that exceed their costs. Without accountable and transparent procedures, there is no way for the people to evaluate whether this is likely. Meanwhile, special interests fight over the use of the funds, knowing that the future costs will be borne by others, regardless of how the money is spent. In a roundabout way, the wealth generated by the people is transferred through forced taxes to the country's rich.
The same, of course, happens in Canada when governments continue to implement deficit budgets. The interest paid on the money borrowed by governments is in effect a transfer of wealth from the taxpayers to the rich who lend the money to the governments. When a Canadian government genuinely tries to balance budgets or otherwise reduce the huge debt, measures are quickly put into place to through media propaganda (the media's owners are part of that economic and political elite) to make the people toss that government out. Most people are too ignorant, naive or both to really make a true informed decision about whether a given party or politician is worth being elected into power.
The government's principal interest is political survival, which means winning an election some time in the next year. It is the government's responsibility to maintain political survival as, after all, it is its mandate to carry out the wishes of the economic and political elite. The moment it is unable to do so or it does not wish to, the propaganda machine kicks in to turn public opinion against it. The reality is that Canada and the United States, for instance, only have pseudo-democracies. None of the elected representatives ever vote in the Congress or in parliament or the legislature so that it relects the true need of the constituents he or she represents. Rather, they are told by the caucus on how to vote.
In the absence of transparent and accountable procedures to evaluate the costs and benefits of its policies, they know that most people will see only the immediate benefits, if any, of "gifts" from the new expenditure programs. Transparency and accountability are necessary to ensure a longer and more informed view of government policies.
This is what accountability is all about, and it is why until recently the
IMF, World Bank and other international agencies made it such a high priority.
It appears to be a mystery why they have chosen to back off at this time.
The "IMF program" is an elusive and a disappointing target. It is not only
Thailand that is amazing -- so, it appears, are the IMF the World Bank and
a number of other international organisations. The reality is that these
organizations in the end work for the economic and political elite, mainly
of the west and their vested interests. Corrupting officials and the rich
in developing countries gives them access to those countries' financial,natural
and human resources at cheap rates.
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Frank Flatters is professor of economics at Queen's University, Canada. He can be reached atff@qed.econ.queensu.ca