Asia will have to learn the rules

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The IMF could scarcely have chosen a better place to hold its annual meeting this year. By a lucky fluke the world's financial community will be gathering in Hong Kong to put the Asian financial turmoil under the microscope. The questions to address are: what caused the crisis, could it have been foreseen, could it have been prevented, and has the response been adequate?

With hindsight, the causes of this rude interruption to the East Asian economic miracle are reasonably clear. Trying to keep exchange rates fixed with an overheating economy and hot money flows sloshing around is a recipe for trouble. Protected domestic banking sectors rife with sweetheart lending deals have made the situation worse.

These are not unobvious points and they highlight the fact that recent events were very predictable. IMF officials were warning that it would happen, first privately and then publicly, for months before it actually did. Malaysia's Mr Mahathir was always wrong to blame the likes of George Soros for this summer's plunge in his currency. Mr Soros is merely a mirror of international sentiment. He didn't provoke the crisis, he merely capitalised on it.

As the floodgates broke, the IMF trundled its post-Mexico emergency response mechanism into action. The speed with which it moved might have helped prevent a meltdown in the Thai banking system. But ultimately prevention and cure lie in the hands, not of the international community, but of the region's governments. In the end there is nothing the IMF can do to alter the policies of countries which are not borrowing money from it. It can impose economic reforms on the poor countries which are amongst its biggest borrowers, or on countries like Mexico and Thailand which seek emergency loans. But the fate of others like Malaysia and Indonesia lies in their own hands.

With the announcement of reforms like the lifting of restrictions on foreign ownership of shares and the postponement of grandiose government building projects, both countries have shown signs of reluctant acceptance of the rules of the international financial markets - including rule number one, that foreign capital only wants to come in if it can get out again. The crisis should have taught them that it is impossible to ride two horses at the same time, state dirigisme for domestic political influence, and free market capitalism for access to foreign money. The two things just don't mix.