Role of the IMF:

The role of the IMF has been considered quite controversial during the crisis. To begin with, many commentators  in retrospect criticised the  IMF for encouraging the developing economies of Asia down the path of "fast  track capitalism", meaning liberalisation of the financial sector (i.e. elimination of restrictions on capital flows); maintenance of high domestic interest rates in order to  suck  in portfolio investment and bank  capital;  and pegging of the national currency to the dollar to reassure foreign investors against currency risk.

However,  the greatest criticism of the  IMF's  role in the crisis was  targeted towards  its response. As  country after country fell into crisis, many  local businesses  and governments that had  taken  loan's  in US  dollars, which suddenly became much more expensive relative to the local currency, which formed their earned income, found themselves unable to pay their creditors. The dynamics  in this scenario were similar to that of the Latin American debt crisis. In  response, the IMF offered to  step-in in the case of each nation and offer it a multi-billion dollar  "rescue package" to enable  these nations  to avoid default.

However, the IMF's  support was conditional on a series of drastic economic reforms  influenced by neoliberal economic principles  called a structural adjustment package (SAP). The  SAP'S  called  on  crisis nations  to  cut government spending to reduce deficits, allow insolvent banks and financial institutions  to fail, and aggressively  raise  interest rates. The  reasoning was that these steps would restore confidence  in the nations' fiscal solvency, penalise insolvent companies, and protect currency values.

But the effects of the SAP'S were rather mixed and their impact controversial. Critics noted the  contractionary nature of these policies, arguing that  in a recession,  the  traditional response  is  to increase government spending, support major  companies,  and lower  interest rates.