THE INTERNATIONAL Monetary Fund is facing growing resentment in Asian countries due to the double standards with which it treats the interests of international banks on one hand, and local institutions and local people on the other hand.

Critics of the IMF have long pointed out that its main role since the 1980s has been as the chief debt collector for international banks.

The banks had lent heavily to Third World governments, mainly in Latin America and Africa. When these countries defaulted (or were on the verge of default) on their external loans, the IMF organised programmes of debt rescheduling and new loans.

Most of the debts were owed to international banks and Northern governments, which also provided most of the roll-over and fresh loans. Though its own share of the loans was small, the IMF (together with the World Bank) was asked by bankers and creditor governments to coordinate the rescheduling exercise.

The banks and creditor governments would agree to roll over old loans and give new loans only if the IMF gave a good report of the indebted country. This role of chief examiner gave the IMF and the World Bank the power to impose "structural adjustment" conditions on the more than 80 indebted countries requiring rescheduling.

The policies were based on the simplistic philosophy that since governments could not be trusted, the economies should be liberalised (opened to global trade, finance and investment), privatised and deregulated. This drastically reduced the role of the state, which was told not to intervene in the economy.

Even more importantly, the IMF insisted that every dollar of foreign loan had to be repaid. So the IMF conditions placed top priority on government budgets being skewed towards foreign debt servicing, even as social and economic spending was brutally cut.

The international banks and creditor governments got most of their money back. Only recently have some countries had small amounts of their debt stock "forgiven."

The banks avoided losses on their sour Third World loans, and indeed profited from them as neither interest nor principal were forgone, thanks to the IMF's conditions.

Paying the price, most countries coming under the IMF were induced to undergo a long period of recession and austerity, from which they have not recovered. The financial resources saved through cuts in government spending and reduced imports were channelled to pay the international banks. Today, most African countries are poorer and even more indebted, despite 15 or more years of "structural adjustment."

One of the most critical of the IMF conditions in many countries has been that governments have to ensure the banks are repaid the foreign debts not only of the public sector but also of the private sector.

Thus, the repayment of the foreign loans of private companies and individuals had to be guaranteed by the governments, even though these loans had been privately contracted between the international banks and the private sector.

In many cases, the governments had to take over the private sector's foreign debts as the local companies and banks (some of which went bankrupt) could no longer service their loans.

Of course, this is unfair from a commercial point of view. In normal circumstances, if a bank provides a loan to a company or individual, it takes the risk of suffering losses if the customer cannot pay up.

But in many IMF deals with troubled countries, the international banks escape any loss as the governments are asked to assume the private sector's external loans.

This has crucial significance for the Asian crisis, because in Thailand, Indonesia and South Korea, most of the existing foreign loans were contracted by the private sector.

It is not confirmed that the IMF agreements with these countries (which are secret and not open to public scrutiny) also include the condition that the governments undertake to guarantee the servicing of these private-sector foreign loans. But the signs are that this is the understanding. On 9 December, Reuter reported on a leaked IMF confidential document on the South Korean crisis. According to the report: "The IMF noted the government on 25 August had said it would guarantee the payment of foreign debt liabilities by South Korean financial institutions but that laws implementing the guarantees were not approved by the National Assembly.

"Market confidence also was undermined by the National Assembly's failure to pass crucial financial sector reform bills, it said. Seoul has promised to adopt the legislation as a condition for the IMF-led bail-out."

There is a practice of double standards in the IMF's approach. It insists on the condition that the client government not spend public funds to rescue or subsidise the country's ailing banks, finance companies and corporations.

This is supposedly on the grounds that market forces should not be tampered with, and local private financial institutions, companies and businessmen that are insolvent should be forced into bankruptcy. Those who have made business mistakes should pay for them. Aiding the private sector would be inefficient and against the rules of the free market.

However, this magnificent adherence to market rules is not to be applied to the foreign banks and financial institutions that have lent in foreign currency to the local private sector. They have to be repaid in full. They are not required to suffer (in fact they are protected from) any losses for their wrong decisions in providing credit to customers that are now insolvent.

Indeed, a large part of the massive IMF-coordinated loans to the three Asian countries may not even end up there. Many billions of dollars of the "bail-out funds" will simply be transferred from the IMF to the governments for re-channelling to the international banks to service mostly sour private-sector loans.

This is tantamount to a massive subsidy to the international banks. Most of the outstanding foreign debts (South Korea US$200 billion, and over US$100 billion each for Thailand and Indonesia) were contracted by private companies and financial institutions, many of which are unable to pay back due to the slowdown of exports and business, the currency depreciation and the stock market crash in these countries.

It would appear that the IMF and the creditor countries that are contributing to the rescue packages want to ensure that the international banks and institutions that (foolishly as it turned out) lent heavily to troubled Asian countries are paid back in full.

This is grossly unfair as the international banks should have done proper investigation before giving out the loans. They took the risk and should bear the cost of their own mistakes.

But the market principle of "let those institutions that made a mistake pay for it," so sacredly held to and insisted upon by the IMF for local institutions, does not seem to apply to the international banks and institutions.

There the contrary principle holds, that it is equally or even more sacred that all foreign loans should be serviced, and the international creditors should not be asked to bear some of the losses.

No wonder the IMF has been portrayed as the chief debt collector on behalf of international banks!

This lends credence to the criticism that the IMF is insisting on austerity and the market rule of "no public assistance" not because it truly believes in the efficiency of markets, but because it wants the affected countries to squeeze out maximum national resources to pay back the international creditors.

Those who have to pay the price are those involved with the ailing local banks, finance companies and corporations. Worst affected are the innocent members of the public that deposited or invested their life savings in these institutions.

At least the majority shareholders know that in business one has to be prepared to lose everything, and they could also have contributed to the debacle through inefficient or unethical practices.

But those many thousands who saved in the financial institutions that are forced to close or suspend their operations (56 finance companies closed in Thailand, 16 banks closed in Indonesia, 14 merchant banks suspended in South Korea) are left wondering when or whether their deposits will be released, even though the governments have assured that depositors (or most of them) will get their money back.

Politicians and citizens who are on the wrong side of the IMF's double standards in conditions placed on their countries are naturally resentful. But even writers in the establishment Western media have castigated the IMF for its priority in helping international banks at the expense of local people.

Philip Bowring of the International Herald Tribune (9 Dec) wrote: "It is clear to many in East Asia that the surge of short-term capital into the region was the work of Western and Japanese bankers...The sudden actual or threatened withdrawal of much of that capital over recent months was what caused the crisis... "There is justifiable suspicion that the IMF is there not to help the troubled countries but to bail out international banks. It is indeed curious that the fund (rightly) insists on local banks' being forced to admit losses, close down or be recapitalised. But why not let market forces work their magic in full?

"Why not let the Japanese, European and US banks face the consequences of their own follies? Let them try calling in their foreign currency loans to hopelessly indebted enterprises in Korea, Thailand and elsewhere."

"The IMF may help global financial stability. But who should pay for that? IMF funds are seen in Asia primarily as a bailout of foreign banks, paid for by local taxpayers, shareholders and workers."

Jeffrey Sachs, head of the Harvard Institute for International Development, wrote in the Financial Times (11 Dec): "It is time that the world take a serious look at the International Monetary Fund.

"In the past three months, this small, secretive institution has dictated economic conditions to 350 million people in Indonesia, South Korea and Thailand. It has put on the line more than $100 billion of taxpayers' money in loans.

"These bailout operations, if handled incorrectly, could end up helping a few dozen international banks to escape losses for risky loans by forcing Asian governments to cover the losses on private transactions that have gone bad. Yet the IMF decisions have been taken without any public debate, comment or scrutiny."

Commenting on the pressure on governments to take over the payment of bad private-sector loans, a senior Malaysian commercial litigation lawyer, Mr Gurdial Singh Nijar, said: "It is a fundamental principle of contract law that only parties to a contract have rights and obligations."

"So if there is a contract between a foreign lender and a local borrower, it is not right to impose any obligation on anyone else upon the breach of any terms of the contract."

Nijar said that in Commonwealth countries this was a central concept known as "privity of contract".

"To impose fresh obligations on a government in respect of a failed contractual relationship is not only unfair but against this basic legal tenet. Thus if this were proposed as an IMF condition it would be improper and the government is within its right legally to refuse this obligation on this basis."

Nijar added that if a local company could not service its foreign- currency loan from a foreign bank, the bank take action to realise the securities on which the loans are given.

"It can act to wind up the company and realise its assets to pay back at least part of the loan. And if there are guarantors for the loans, they too can be sued."

Since these actions can be legitimately taken by the international banks, concluded Nijar, they should not be given the added privilege that their non-performing loans to the private sector be now guaranteed or taken over by the government.