SUNS #4293 Friday 2 October 1998


FINANCE: GRIM EXPECTATIONS FROM 'REVISIONIST' IMF

Washington, Sep 30 (IPS/Abid Aslam) -- The International Monetary Fund has severely trimmed its projections of global economic performance in what has become a grim tradition for the agency.

Output will grow by two percent this year and 2.5% in 1999, the IMF predicted Wednesday in its latest 'World Economic Outlook' report.
That would compare with actual growth of 4.1% in 1997 and would be the slowest rate of expansion since 1992, when the figure was 2.5 percent.

The latest projections, more than one percentage point lower than those made just five months ago, were wildly at odds with forecasts made in October 1997. Then, the Fund said that world output
actually would increase to 4.3% this year despite the financial typhoon lashing Asia.

[Experts elsewhere have long noted that as dogmatic as it is in ideologically motivated policy prescriptions, the Fund is "revisionist" in projections -- constantly giving optimistic projections to suggest its policies are working, and subsequently revising them downwards.]

In December, the IMF was impelled to 'adjust' its projections in an 'interim assessment' anticipating 3.5 percent global growth this year and 3.7 percent in 1999. Events repeatedly have thwarted the
agency's attempts to predict the economic future of its 182 member states and its economists have come to doubt their own forecasts.

"Indeed, a significantly worse outcome is clearly possible," according to the new report. "The potential for a broader and deeper economic downturn stems from a multitude of inter-related
risks that make the current economic situation unusually fragile."

Those risks include a prolonged drought in commercial bank lending to and institutional investment in emerging markets, as well as disruptions in international trade and payment systems.
Further declines in stock markets could bring "attendant losses of financial wealth and contraction of consumption and investment world-wide."

Net private capital flows to 29 leading developing countries will fall to about 160 billion dollars, from 240 billion dollars in 1997, according to a leading group of private financiers.

Long-term foreign direct investment was expected to hold up at around 100 billion dollars this year and next but portfolio investments would decline by more than half, to 10 billion dollars, by the end of 1998, the Institute of International Finance warned.

The IMF also acknowledged that its vision of export-led recovery in Asia - a central tenet of its bailouts and policy prescriptions - was blinkered. Nevertheless, its latest forecast was based on
assumptions that investor confidence in Asia would be restored over the course of 1999.

"The previous projection of early recovery in the crisis-hit countries was based partly on the assumption of rapid improvements in trade balances, including through growth in exports generated by improved competitiveness," the report said.

Trade balances did improve in Indonesia, Malaysia, the Philippines, South Korea, and Thailand - but mainly because cash-strapped Asian countries had to jettison imports.

"The total exports of the five countries in U.S. dollar terms were roughly unchanged," the report said, noting that the benefits of increased exports were diminished by falling currency values and
product prices, including those of primary commodities.
Indonesia, Korea, Malaysia and Thailand would turn in a collective contraction of 8.7 percent this year, according to the report, with Indonesia's economy shrinking by 15 percent.

The bloc would begin to recover next year and post 0.6% growth. All being well, growth could reach 5.3 percent in 2001-2003, compared to 7.2% in 1996.

Russia has replaced Asia as "the epicentre of global financial market pressures," the Fund said. It forecast a six-percent output decline there this year and again in 1999. The agency previously
had predicted one percent growth for 1998 - up slightly from 0.9% last year - and 1.9% in 1999.
Growth in the United States, thus far a beneficiary of weak commodity prices and a strong dollar, would slow to 2% in 1999, down from 3.5% this year, predicted the report, written before the
U.S. Federal Reserve Board, or central bank, announced Tuesday it would cut a key interest rate by one-quarter of a percentage point in a bid to prevent the impending slowdown from deteriorating into full-blown recession.

Japan, the world's second biggest economy and widely regarded as key to Asia' prospects of recovery, faced a 2.5% decline this year, the Fund said, but could post a slight, 0.5% recovery in 1999.

Africa would post economic growth slower than previously expected: 3.7% in 1998, 0.9% less than earlier thought, and 4.7% in 1999, 0.2% lower than the IMF's last prediction.

The Middle East and Europe would post 2.3% growth this year and 2.7% growth in 1999, down about one percentage point from earlier expectations, while Latin America and the Caribbean would post growth of 2.8 percent and 2.7 percent, respectively, in 1998 and 1999, the Fund said.

The IMF's latest outlook came ahead of the annual meetings of its governors here next week, and amid dissatisfaction among members and markets alike of the agency's handling of the Asian crisis,
prevention of further outbreaks, and surveillance of the global economy.

A three-member team of outside experts, who have been scrutinising the Fund's surveillance operations, were expected to submit its report next June. IMF management commissioned the unusual review following shareholder complaints that it failed to foresee the Mexican peso crisis of 1994-95, the financial turmoil unleashed in Asia last year, and its reverberations in Russia and Latin America.