- Kevin Barnes, Ali Mansoor, Benjamin Cohen, and Shinji Takagi
- Published Date:
- September 2003
© 2003 International Monetary Fund
Production: IMF Multimedia Services Division
Cover: Martina Vortmeyer
Figures: Theodore F. Peters, Jr.
Typesetting: Alicia Etchebarne-Bourdin
The IMF and recent capital account crises: Indonesia, Korea, Brazil—[Washington, D.C.]: International Monetary Fund, 2003
Includes bibliographical references.
1. Capital movements—Indonesia. 2. Capital movements—Korea. 3. Capital movements—Brazil. 4. International Monetary Fund—Evaluation. I. International Monetary Fund. Independent Evaluation Office.
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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.
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
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
Asian Development Bank
Asia and Pacific Department (IMF)
Asia-Pacific Economic Cooperation
Association of South East Asian Nations
Basel Committee on Banking Supervision
Bank for International Settlements
Bank Liquidity from Bank Indonesia
Bank of Korea
Supreme Audit Agency (Indonesia)
Currency board arrangement
Contingent Credit Line (IMF)
Certificate of deposit
Financial transactions tax (Brazil)
Extended Fund Facility (IMF)
Executives’ Meeting of East Asia–Pacific Central Banks
Exchange rate mechanism
Foreign direct investment
Financial Sector Assessment Program (IMF)
Financial Supervisory Commission (Korea)
Financial Supervisory Service (Korea)
Group of Seven countries
Gross domestic product
Indonesian Bank Restructuring Agency
International Capital Markets Department (IMF)
Inter-American Development Bank
Independent Evaluation Office (IMF)
International financial institution
Institute of International Finance
International Monetary Fund
Indonesia Debt Restructuring Agency
Investment trust company (Korea)
Jakarta interbank offered rate
Korea Asset Management Corporation
Korea Development Bank
Korea Deposit Insurance Corporation
London interbank offered rate
Letter of intent (IMF)
Lender of last resort
Monetary and Exchange Affairs Department (IMF)1
Memorandum on economic and financial policies (IMF)
Ministry of finance
Ministry of Finance and Economy (Korea)
Net domestic assets
Net international reserves
Organization for Economic Cooperation and Development
Performance criteria (IMF)
Policy Development and Review Department (IMF)
Private External Debt Team (Indonesia)
Public Information Notice (IMF)
Public sector borrowing requirement
Private sector involvement
Research Department (IMF)
Report on the Observance of Standards and Codes (IMF)
Stand-By Arrangement (IMF)
Bank Indonesia certificate
Special Data Dissemination Standard (IMF)
Special drawing right (IMF)
Small and medium-sized enterprise
Supplemental Reserve Facility (IMF)
Unit of real value (Brazil)
Western Hemisphere Department (IMF)
World Trade Organization
Effective May 1, 2003, name was changed to Monetary and Financial Systems Department.