Asia's economic crisis
To conclude (pp.24-27), Jesús Albarracín and Pedro Montes explore the workings of global financial markets, and explain the causes and consequences of the growing role of speculative capital.
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In the early part of 1997, a major economic and financial crisis erupted in Southeast Asia. It began in Thailand in February 1997, spreading from July onwards to Malaysia, Indonesia, and the Philippines. These four countries had not
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Mariboro long before been cited by the IMF, the World Bank, and private banks as the models to emulate, thanks to their major degree of openness to the world market, their low inflation and their high growth rates. They were Asia's four "dragons", engaged in a race to catch up with the region's four "tigers" (South Korea, Taiwan, Hong Kong, and Singapore). Today, the very same institutions criticise these countries for having given the state too strong a role; they say the state had made the error of allowing private financial and industrial concerns to accumulate exaggerated levels of debt and to speculate.
In the five years leading up to the crisis, these countries' external debt had more than doubled. The 1997 crisis unleashed a renewed explosion of debt, suddenly making it very difficult for the countries to meet their financial obligations. Taiwan and China are exceptions to the rule, but for how long?
Growth in the "dragon" countries (Thailand, with a population of 60 million; Indonesia with 203 million; the Philippines with 73 million and Malaysia with 20 million) was driven by foreign capital, imports of goods and machinery, and by low salaries.
This soon led to the appearance of two negative factors. First, the external debt -largely in the form of short-term loans contracted in financial markets- grew
As the New York Stock Exchange reaches new records, people across Asia are facing the consequences of a savage economic crisis which exploded in the second half of 1997. Countries once praised as examples of dynamic capitalism are told that they must allow Western multinationals to take control of their financial and industrial sectors. Meanwhile, governments, bankers and journalists in the imperialist countries reassure their citizens that the crisis is over. But, as this special dossier argues, the worst is yet to come. In our first article, Eric Toussaint, co-ordinator of the Brussels-based Committee for the Cancellation of Third World Debt, gives a blow-byblow account of the storm that has destroyed jobs and savings across Asia, and exposes the role of the International Monetary Fund in creating, then exploiting the crisis. In a second article (pp.20-23) Maxime Durand looks at the impact of the Asian economic crisis on the rest of the world, and debunks the myth that Western Europe and North America are at the beginning of a new cycle of technology-led growth. 14 International Viewpoint #300 rapidly; second, the trade deficit continued to rise. Indeed, imports were systematically higher than exports. In other words, these countries productivity remained structurally lower than that of the industrialised nations with which they were trading
The four "dragons" have retained the characteristics of Third World economies and therefore suffer the effects of unequal trade. The relative price of their exports is lower than the relative price of the goods they must import to reach their growth targets and to satisfy the consumer needs of the wealthiest sectors of the population It is only these layers of the population that have the necessary purchasing power to buy high-quality consumer durables. A large section of the population did not benefit from the fruits of growth, which explains why the gap between rich and poor within the countries in question actually grew in size, despite an overall increase in national income. Now that the crisis has hit, the richest sectors of the population continue to amass wealth while
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the majority - including most in the middle classes - has seen its income plummet. This will only serve to accentuate the characteristic features of an
"underdeveloped" economy.
Thailand was the first country to plunge into crisis, its currency being pegged to the dollar (which wasn't the case for the other three "dragons"). The
Thai bhat therefore kept in step with the dollar, which had strongly risen in value.
This made Thai exports much less competitive, provoking capital flight. The three other "dragons" the Thai collapse.
Thailand is the fifth most indebted Third World country in absolute terms, just behind Brazil (population 170 million), Mexico (population 90 million), China (population 1.2 billion) and South Korea (population 45 million). The global stock market crisis
The crisis was not limited to the four "dragons", In October 1997 it hit Hong Kong hard and began to undermine South Korea. It deepened the economic crisis already affecting Japan. By late October and early November, all the world's stock markets were shaken.
The large institutional investors -pension and mutual funds, insurance companies and banks- panicked in the face of the monetary and stock market instability for which they are largely responsible They deepened the crisis by selling off some of their stocks to convert them into Iquidity or to buy bonds from governments in the most industrialised countries. These bonds were seen as safe havens, although their yield immediately dropped in response to the flood of money in their
Capital flight out of Southeast Asia began in early 1997. From July onwards, the scale of this flight forced the "dragons" to progressively devalue their currencies relative to the U.S. dollar. The outward flow of capital eventually affected Hong Kong, the main stock market in the Third World and the sixth largest
The Latin American bourgeoisies had hoped to attract this capital outflow from Asia into long-term investment in Latin America, but this was not to be. On October 27, the Mexico City, Sao Paolo, and Buenos Aires stock markets -Latin America's three main financial centrescrashed simultaneously. By December 1997 the Mexico City stock market had recovered, but for how long?
On October 27 and 28, the crisis spun out of control; all the world's stock market plummeted. Under the combined effects of the huge devaluation of their currencies, and the emergency loans from the IMF, World Bank, other financial institutions, and some governments, the weight of the external debt of the four "dragons" increased dramatically. Now that the two U.S. credit-rating agencies Moody's and Standard and Poor's have downgraded the country-risk rating of the "dragons" and
South Korea, these countries have to pay very high short-term interest rates to contract loans aimed at paying off past debts. The social costs in Southeast Asia and the knock-on effect in the industrialised
Beginning in the summer of 1997,
Southeast Asian industrial growth has fallen significantly. It appears there will be zero and perhaps even negative growth in
1998. The four "dragon" countries' 350 million inhabitants have seen their purchasing power tumbling down. According to the World Bank, by early 1998, 2.3 million Indonesians had already lost their jobs (International Herald Tribune, January 12, 1998). One million Malaysians and 1.7 million Thais were in the same position. We are in the early stages of an out-andout social catastrophe.
The slowdown the "dragon" countries" industrial growth will lead to a drop in their imports from the industrialised countries, which will suffer as a result. The effect on each industrialised country will be proportional to the amount of exports they had been selling to Southeast Asia prior to the crisis. The Asian countries affected by the crisis (including South Korea took in no less than 19% of U.S. exports in 1996. Japan, the United States, the Netherlands, and Germany will be most seriously affected. But since 60 percent of French and Belgian exports go to Germany, these countries too will be seriously affected. A failing grade for the IMF
The IMF had sworn it would never again be caught off guard by a financial crisis characterised by the massive outflow of capital from a given country. Following the 1994 Mexican crisis, the IMF had established a monitoring system for each country's national economy, aimed at eliminating the possibility of another Mexico-like crisis. But this system proved to be of no use.
The IMF Board of Directors' Annual Report for the year ending April 30, 1997, was written up during the summer of 1997, while the Southeast Asian crisis was gathering steam, and published in September. It reveals an IMF steeped in illusion about its own ability to pinpoint the beginnings of a crisis on time. "[We] note that consistent progress has been made, especially concerning the IMF's ability to detect the appearance of financial tensions at an early phase" (IMF Annual Report 1997). The actual course of events soon showed how baseless these self-satisfied comments had been.
The IMF did not foresee the major financial crisis that hit the four "dragons". Worse, in its World Economic Outlook. written during late 1997, the IMF did not foresee the crisis that would hit South Korea, the world's 11th most powerful economy, only days later, in November
IMF President Michel Camdessus constantly changes his explanation for what is happening. At a press conference held at
IMF headquarters on December 18, 1997, he said that the IMF had underestimated both the danger and scope of the crisis. Yet in Brussels on January 21, 1998 he blamed the crisis on the leaders of the countries affected. He accused them of not having heeded IMF warnings! He added, "If we had been able to act six months earlier, the crisis in South Korea would never have happened" (Le Soir, January 22, 1998). The IMF and the Asian "dragons"
Beginning in the 1980s, the IMF and the World Bank had pointed to the four
"dragons" as models to be emulated by all
Third World countries, and even Eastern Europe. This posture was maintained right up until the outbreak of the crisis.
On Thailand, the 1997 Annual Report includes a summary of a working meeting held between the IMF and Thai officials in 1996. According to the report, the country's external debt had risen sharply between 1991 and 1995, rising from 39 percent to 49.5 percent of GDP. Furthermore, it says, half of this external debt was contracted on a short-term, high-interest basis, and the trade balance was increasingly in the red. The report highlights other causes for concern. Nevertheless, it draws the following balance sheet: "The managers enthusiastically praised Thailand's remarkable economic performance and its strict application of sound macroeconomic policies. They noted that financial policy had been tightened in 1995 in response to the increase in inflation and in the current account deficit, and that these measures had begun to bear fruit, although they warned Thai officials against being complacent" (IMF 1997 Annual Report).
Indonesia also earned IMF praise. "The managers congratulated Indonesian officials for the country's economic performance in recent years, in particular for the significant reduction in poverty and improvements in a wide range of social indicators (….)" (IMF 1997 Annual Report). IMF managers praise Indonesian officials for prioritising "the free circulation of capital", though they highlighted some of the dangers this entailed "Massive capital inflow has raised a number of challenges for government officials," the report says. The analysis continues with praise for Indonesian officials, indicating that they would handle the new challenges with comparative ease. "One of the ingredients of Indonesia's success has been the flexibility with which officials have adapted economic measures to changes in the situation. This will be an challenges" (IMF 1997 Annual Report)
As for Malaysia, the report congratulated Malaysian officials for the country's ongoing remarkable economic performance, characterised by robust exportoriented growth, low inflation, and noteworthy social progress in the reduction of
poverty and improvement of income distribution. Sound macro-economic policies and broad structural reforms have boosted these results"(IMF 1997 Annual Report).
Once the crisis began, these very same Thai, Indonesian, and Malaysian officials became the targets of criticism from the IMF and neo-liberal ideologues. Malaysian Prime Minister Mahathir was a particular source of irritation to the IMF for a number of reasons. From late July 1997 onwards he attacked the criminal role of large speculating financial institutions; he attacked the IMF and refused its assistance; he visited Fidel Castro in September 1997; and Malaysia hosted the G15 Summit in the fall of 1997, bringing together the main countries of the Third World in a (sadly) failed attempt to put pressure on the industrialised countries.
As previously stated, one of the main causes for the crisis in the "dragon" countries was a high growth rate based on a massive inflow of foreign capital and on imports levels that consistently surpassed exports. This led to a rising current account deficit, accentuated by the increase in the value of the dollar in 1996 and 1997. These countries pursued a low-wage and high-interest policy aimed at attracting foreign direct investment and speculative
This policy created a distorted domestic market in which only a small wealthy minority enjoyed high consumption levels, and in which speculative investment exploded in sectors such as real estate. Financial and industrial concerns in the "dragons" all took on high levels of debt to undertake major development projects and to engage in speculative investment practices. Local banks and brokerage firms made huge loans without requesting adequate guarantees from their debtors.
When the vanguard among international and local financial speculators -led by George Soros' Quantum Funddetermined that government officials would be unable to defend their currencies, they unleashed their attack, starting with the Thai bhat. The first round of attacks proved to be a success, a wave of 16 International Viewpoint #300 panic selling followed. Those local capitalists who could, also exchanged their local currencies for dollars, which they invested
For this reason, Mahathir's condemnation of international speculators is inadequate; he has had nothing to say about local capitalists who behaved in exactly the same way, sheltering their capital from regional turbulence.
The Malaysian PM seems more interested in finding a scapegoat to redirect the population's anger, to protect the region's home-grown capitalists. Indeed, like his Thai counterparts, he seems to have found another category of scapegoats - the large number of migrant workers both countries have decided to expel.
The crisis has awoken the region's governments to the disadvantages that come with a massive inflow of volatile capital. This inflow feeds a speculative financial bubble and pushes up the value of the local currency (due to the enormous quantity of strong currencies in circulation on the domestic market).
An example of the change in thinking in the region came from Cesar Bautista, Philippine minister of commerce and industry. While not jettisoning his neoliberal creed, he told the French paper Le Monde that "our currency was never pegged to the U.S. dollar. We always let the market determine the exchange rate. The problem was - and the same goes for other countries - that the market was functioning abnormally due to the excessive influx of dollars. When dollars flood into your economy, your currency is probably over-
Further on, Bautista engages in self-criticism. "We should have applied much stricter measures over the past two years to control the enormous influx of U.S. dollars. We could more closely track portfolio investment, we should also encourage these investors to make a longer-term commitment to the country by short-term speculative operations." (Le Monde, January 13, 1998). But for the moment, the IMF remains hostile to such measures. The IMF and the South Korean crisis
The crisis erupted in South Korea in November 1997. In its October 1997 quarterly bulletin on economic prospects for the coming two years, the IMF makes absolutely no mention whatever of the crisis that would hit the world's 11th most powerful economy a few days later.
After the fact, the IMF did exactly the same as the army of neo-liberal editorialists and economists. Having praised South Korea to the skies until 1996, it changed its tone overnight. The South Korean system, it now said, was based on too much overlapping between state employees and institutions, financial establishments and industrial houses. These financial and industrial establishments form huge conglomerates -the chaebols- that finance political leaders in exchange for continued economic privileges.
The neo-liberals also criticise South
Korea for upholding a highly protectionist arrangement, an overly strong public sector and a social insurance system seen as too favourable for workers. The causes of the South Korean crisis
South Korea's industrial development is more advanced and began long before that of the four "dragons". Some South Korean multinationals had even managed to compete head-to-head with powerful companies from the advanced industrialised countries in a number of sectors (computer semiconductors, automobiles, shipbuilding, industrial goods). South Korea's share of the world market continued to grow until 1996.
The South Korean development model was in many ways the antithesis of the neo-liberal model. It involved a radical agrarian reform in the 1950s, industrialisation fostered and protected by the state, military dictatorship and repression of the trade union movement, followed by significant concessions to labour in the face of powerful working-class mobilisation. South Korean workers have the second highest wages in Asia, after Japan.
The causes of the South Korean crisis correspond to three distinct factors.
First, the country experienced a decline in the terms of trade between the relative value of its exports and that of its imports. In 1996-1997, the volume of South Korean exports rose by 37 percent but brought in only 5 percent more revenue. The dollar value of South Korean exports dropped by about 15 percent in 1996 and 12 percent in 1997. The weakening of the Japanese yen made Japanese exports more competitive. South Korea was also confronted with competition from China and the four "dragons"", whose competitiveness was linked to a low-wage policy. Finally, South Korea had carved out a specialised niche for itself in the production and export of semiconductors, and was hit hard by the drop in prices in this industry.
Second, South Korea had grown increasingly dependent on the recent, massive inflows of foreign capital in its most volatile form portfolio investment and short-term loans. To compensate for export losses, South Korean companies took out huge short-term loans in expectation of an economic recovery that never
Third, South Korean employers failed in their attempt to make workers pay for losses suffered in export markets. They tried to shackle industrial workers (whose wages had risen at an annual rate of 16 percent between 1987 and 1996) by getting the government to hurriedly adopt modifications to the labour code in late December 1996, in the absence of the parliamentary opposition. This measure provoked a general strike, which was victorious inasmuch as the workers obtained a two-year moratorium on
Under the combined effects of the Southeast Asian crisis, the continued rise
in the value of the dollar and depreciation of the yen, the accelerated outflow of volatile capital from the country (which had begun in earnest in the spring of
1997), the South Korean economy was plunged into a major crisis - placing it at the mercy of the IMF and the United
States. IMF-imposed structural adjustment
A thorough structural overhaul is under way. A number of financial establishments have been shut down, and extensive layoffs have occurred. The central bank has been made autonomous of the government (making it easier for the IMF to exercise its influence), while interest rates have skyrocketed, sinking local industry and consumption into recession. Major investment projects have been abandoned. The major South Korean conglomerates (the chaebols) are being dismantled, and the country's labour code is being modified to allow for extensive layoffs. Indonesia has abandoned its ambitions in the aviation and automobile industries. These countries havebeen plunged into a deep recession.
Governments have been placed under the supervision of the IMF, the World Bank, and the G7 countries, particularly the United States. They must make regular reports to their overseers, who can at any time threaten to stop the flow of loans the countries need to pay back private creditors. This represents nothing less than a loss of national sovereignty.
The loans provided by the IMF, the World Bank, and private banks all include a risk premium tacked onto the market interest rate (except for a small number of the World Bank loans, which target the most vulnerable layers of the population). These institutions will make huge profits. IMF head Michel Camdessus recognised as much at a December 18, 1997 press
The tens of billions of dollars contracted in loans were immediately used to pay back the banks and other international financial outfits. Each of the contributors to the so-called rescue package will be paid back, thanks to the countries' export revenues and savage cuts in public spending. Tax revenues will also go towards paying off the external debt.
Openings for foreign investment (with no limit on the repatriation of profits) will clear the way for U.S., European and Japanese multinationals to buy up Asian companies at rock-bottom prices. The IMF convinced Seoul officials to allow foreign companies to acquire 100 percent ownership in South Korean companies.
International financial institutions will now be able to return to the region to invest a part of the funds they had previously withdrawn in a panic. George Soros acknowledged having done so in 1997, yet he was welcomed back to the country like a visiting dignitary by the new South Korean president, Kim Daejung, who promised he could lucratively pursue his interests in the country. The
48 con: GOd. new president announced that foreign investors were welcome to buy up the 71 institutions comprising the country's domestic financial sector. Hong Kong and China
The crisis in the region has also affected Hong Kong and reduced the influx of capital into China. In 1996, China had attracted more than half of total foreign direct investment (FDI) earmarked for East and Southeast Asia.
Beijing took in 42 billion dollars, the four "dragons" attracted 17 billion, while Singapore received 9 billion that year. (For purposes of comparison, all Latin America took in only 39 billion dollars in FDI that year. Worse, India attracted only 2.5 billion dollars, the same as Hong Kong).
Capital flows into China dropped by 50% during the first half of 1997 compared to the previous year. It is very likely that this decline will continue in 1998.
If China finds itself faced with a dramatic fall in foreign capital inflows, it will have to reduce its imports. This could have a depressive effect on the world eco-
In its desire to keep its exports competitive with those from the "dragon" tries, whose currencies have significantly dropped in value, China will be tempted to devalue its currency. It might resist doing so, to avoid sharpening its trade disputes with the United States, which consistently registers a strong trade deficit with China and accuses Beijing of unfair trading practises. Also, such a devaluation would be seen as an admission of weakness by global markets, and would tarnish China's Image in the eyes of foreign investors
Before the outbreak of the crisis. Chinese officials had adopted a programme of large-scale privatisation for 1998. Will they stick to this plan in a context where all their competitors are privati-
58 68 sing, thereby driving down the price (and therefore the privatisation revenues) of the companies for sale?
Not surprisingly, China's growth rate has begun to weaken. Recessionary effects throughout the Third World?
The first Third World countries to be affected by the crisis will be those whose main revenues come from the sale of raw materials. Prices for these raw materials have dropped considerably, since the countries of East and Southeast Asia are major importers of these products.
Those Third World countries that depend heavily on exports of a few raw materials will be hit harder by the Asian crisis than the most industrialised nations. Take the example of copper. Asian countries are major copper importers. What will be the impact of the drop in copper prices on Chile, which receives much of its revenues from copper exports? The negative effects could be particularly dramatic given that Chile has recently invested in increasing its copper-production
Secondly, countries like Mexico and Brazil hope to profit from the Asian crisis by being the new El Dorado for global investment flows. Funds fleeing Asia have gone in various directions. Some have gone into bonds issued by the governments of advanced industrialised countries to finance payment of their public debts. But another part has gone into short-term loans with interest rates that are particularly high thanks to "country-risk" premiums. In this second category, large quantities of investment flooded into Mexico from Asia, primarily in renewable 28-day government paper
This is highly volatile money. How long will it stay in Mexico? Who can
prevent it from suddenly picking up and leaving - much to the chagrin of Mexican officials - if greener pastures emerge elsewhere? Finally, investment fleeing Asia has inundated emerging-market stock exchanges, primarily the Mexico City stock market. But for how long?
In any event, such a hefty influx of capital leads to overvaluing the receiving country's currency, thereby cutting its competitive edge. If exports drop, the country can become less attractive to investors, leading to an enormous outflow of capital, which provokes a dramatic decline in the value of its currency. Is this not one of the vicious circles of financial globalisation?
Asian countries' exports have become more competitive following the devaluation of their currencies. But this will create problems for the exports of other Third World countries, which may see their markets "invaded" by Asian products suddenly cheaper than the domestic equivalents.
There is another problem. Myanmar (Burma), Vietnam, Bangladesh, and other countries in the region depend on the remittances regularly sent by migrant workers in the "dragon" countries. Yet officials in the "dragons" are planning a massive expulsion of these immigrants. What consequences await the poorest Asian countries? And in the "dragon" countries themselves? Are we heading for an escalation of "inter-ethnic" conflicts? Protectionism shields India and Pakistan
In its 1997 Annual Report, the IMF insisted that "globalisation has contributed to global prosperity." It warned those governments that might seek to control capital flows and partially protect their economies that "the threat of marginalisation increasingly hangs over those who resist globalisation."
This assertion has been refuted by real life. India and Pakistan, the two giants of South Asia, have not yet been seriously affected by the financial storm in Southeast Asia. Both countries are experiencing serious economic problems (Pakistan devotes 40% of public spending to servicing its external debt), but the relative slowness with which they have embraced globalisation has protected them from the speculative domino effect. Far from "marginalisation," the maintenance of protective barriers and controls on capital flows, as well as the slow pace of privatisation, have shielded India and Pakistan from the constant threat of destabilisation. Japan and the United States
Japan's long running domestic economic crisis has been so serious that the country's officials and capitalists have been unable to implement measures that might stabilise East and Southeast Asian finances. Rather, the United States - with the IMF in tow - have taken control of the situation.
Thanks to a strong dollar, U.S. multinationals are better placed than their Japa18 International Viewpoint #300
I ABANG 19 nese counterparts to buy up companies in a region hitherto dominated by Japanese capital. U.S. multinationals are also looking to boost their previously weak presence in Japan.
Japanese capitalists have one way of putting pressure on U.S. officials - they hold one third of all U.S. Treasury bonds. If they were to decide to sell a part of these securities to provide some liquidity for their financial system and to buy up companies in the region, this would create serious problems for the Americans. Indeed, it would increase global financial and monetary instability. It is unlikely, however, that Japanese capitalists will want to bear responsibility for such an outcome.
Lastly, the United States has a strong military presence in the region (particularly in Japan and South Korea), and they have shown no intention of changing this state of affairs. Who will pay for the damage done?
In a cynical editorial, the Financial Times (January 5, 1998) wrote. "profits are for private owners while losses, when sufficiently large, are covered by the taxpayers." International bankers are asking Seoul (and the "dragons") to nationalise the astronomical short-term debts contracted by private South Korean firms. This is exactly what happened during the 1980s Latin American debt crisis. Striking the same posture as they did during the Latin American crisis, private bankers are threatening to cut off all loans to Asia -to South Korean capitalists in this case- if the Seoul government does not step in on behalf of private companies through a public bond issue aimed at paying off their debts.
The Financial Times editorial continues, "Creditors who granted high-risk loans will be saved -first by the IMF, then by South Korean taxpayers- for the simple reason that they and their debtors are too big to be allowed to go bankrupt. To add insult to injury, some creditors are going to make a fortune." No further comment is needed, except perhaps to point out that this process will accelerate the tendency towards a reliance on financial markets for credit. Up until now, Asians had preferred to contract direct short-term loans; now they will have to issue bonds on international financial markets. A double standard on bail-outs
In their talks with Asian government that have requested assistance, the IMF and U.S. officials conditioned their aid on shutting down a large number of badly managed financial institutions. What an incredible contrast with the way in which during the 1980s, U.S. officials organised the re-floating of bankrupt Savings and Loans institutions to the tune of some 200 billion dollars doled out by the federal government. Does IMF head Michel Camdessus, from France, recall the recent 20 billion dollar bail-out of Crédit Lyonnais? In Asia, however, financial institutions in the same position are being forced into bankruptcy — at which point banks from the wealthy industrialised countries will be able to snap them up for almost nothing Arms sales
The official line of the IMF is that Asian countries engulfed in the crisis have to undertake drastic cuts in state budgets. especially in the area of arms spending. As is often the case, reality is very different from the IMF's hypocritical posturing South Korea and the four "dragons" are the main customers of U.S. arms dealers. In the International Herald Tribune (January 14, 1998), Steven Lee Myers of the New York Times writes about how U.S. Secretary of Defence William Cohen "is seeking ways to maintain the military orders" placed by the countries in crisis. In January 1998, close on the heels of Camdessus and U.S. Treasury representative (and former World Bank head) Larry Summers - making their tour of Asian countries subjected to IMF austerity
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conditions - was another delegation following exactly the same itinerary and led by William Cohen, accompanied by Todd Crawford from the U.S. Treasury. South Korea wants to cancel its order for AWAC planes, and Thailand wants to cancel its order for eight F/A 18 fighter jets. Washington, however, wants Malaysia, Thailand, South Korea, and Indonesia to maintain their orders, and has offered a special line of financing to this end. Contradictory reactions in the USA
In early January 1998, former U.S. Secretary of State Henry Kissinger threw a spanner in the works of the U.S. delegation led by Summers just as it was about to begin its diplomatic rounds in Asia. In a piece in the International Herald Tribune (January 12, 1998), Kissinger said Washington was behaving as if it intended to recolonise Asia. He warned against an overly arrogant and aggressive approach, which could provoke an anti-U.S. backlash in the region. He writes, "We must ensure that economic realities do not provoke a wave of nationalism and perhaps anti-Americanism, which would mean that the cure is worse than the illness." Adding, "We should avoid using this opportunity to recolonise Korea." Kissinger might be
In the International Herald Tribune (January 12, 1998), David Hitchcock, a former U.S. diplomat with considerable experience in East Asia wrote, "For the moment, Asians seem to be blaming their own leaders, bankers, and businessmen. But if harsh economic measures lead to further bankruptcies and layoffs, their anger might cross the Pacific.
And in the January 16, 1998 edition of the International Herald Tribune, the number two Democrat in the U.S. House of Representatives, David Bonior, criticised the IMF rescue package. "We must provide aid. But this aid should not be a rescue package for bankers, speculators, and repressive dictators (sic!). We cannot support a rescue package that strangles working people, ignores the causes of instability and then asks the American taxpayer to foot the bill." He says that the U.S. contribution to the IMF package should go towards expanding democratic rights, increasing salaries and improving Asian living conditions.
In all respects, Washington has strengthened its position as a result of the crisis. These warnings will have little impact on U.S. policy and on the U.S.-controlled IMF. The American government and U.S businesspeople clearly feel they have more to gain than to lose by taking their economic and political offensive as far as possible. They want to qualitatively expand their presence in the Asia-Pacific region, at the expense of Japanese imperialism and of those countries subject to IMF con-
• primarily South Korea and Indonesia. Countries such as the Philippines, Thailand, and even Vietnam, are already under U.S. control for all intents and purposes. The IMF bails out the speculators
On January 22, 1998 Stanley Fischer, an American citizen and number two at the IMF, gave a report to U.S. bankers on the IMF response to the crisis. He said there were two possible responses. crisis hit, we could have let it deepen and given a lesson to international lenders. The alternative is to try to moderate the effects of the crisis on a regional and global level in a way that spreads the burden between borrowers and lenders. However, we cannot rule out undesirable side-effects. This latter approach makes more sense. The general interest, and therefore the interest of the United States, is reliant upon a strong Asia that can import and export in a way that drives world growth" (The Asian Crisis: A View from the IMF, IMF press release, January 22, 1998).
Although a bit more subtle than is usually the case, the statement clearly reveals how the IMF has once again played the role of protector of the interests of large international financiers. The IMF refused to teach them a well-deserved lesson. What's more, Fischer leaves no doubt that, in the IMF's view, what's good for the United States is good for the world. Some final questions
1. If inter-ethnic troubles erupt in Indonesia, the Philippines, Malaysia, and Thailand, will world economic and political leaders continue to refuse to see the link with the current economic crisis? Or will they merely be chalked up as "undesirable side-effects""?
2. The Asian model, often described as the Asian "miracle" , no longer exists. Camdessus and others have declared this publicly. Did this model - in particular that of the four "dragons" - ever create the conditions for long-term human development in the countries of the Periphery? Or rather, did it reproduce in its own way the characteristics of dependent countries, dominated by the capitalist Centre? If the Asian model is "out of fashion", to quote Camdessus, what do the high clergy of the IMF and World Bank, and the plethora of neo-liberal development experts, have in mind as a replacement? What is the way forward for poor countries now?
3. As far as the IMF, the World Bank and almost all the world's governments cover feature * are concerned, the worst variant would be to limit the free flow of capital. On the contrary, it should be freed up even more. French President Jacques Chirac, an expert in the art of self-contradiction, has also said as much. Passing through Malaysia in November 1997, he met with Prime Minister Mahathir and declared, "Excessive speculation must be controlled." It seems logical that speculation can only be controlled by placing strict limits on capital flows, but Chirac had a response at the ready. "I am naturally not in favour of exchange controls or limits on capital movements. The free circulation of capital is now a rule everyone accepts" (Le Monde, November 18, 1997).
Yet, the history of the last two centuries offers clear proof that the free circulation of capital is a powerful catalyst for crises. Even if the IMF, World Bank, Bank for International Settlements, the U.S Federal Reserve, and the German Bundesbank were to unite their efforts, they would be unable to discipline capital
- unless, of course, new restrictive legislation was put in place. But these institutions are opposed to such
The IMF and those who run it have plainly shown that, whatever they may say, they are the cause of this and other crises, and not the cure. Camdessus even had to admit this, discreetly, during his negotiations with Indonesian President Suharto, when he agreed that the closing down of 16 Indonesian banks, as decreed by the IMF in November 1997, had provoked a panic and deepened the crisis. He was obliged to offer an apology, so that the old dictator would agree to sign the agreement with the IMF on January 15, 1998.
If indeed the Asian model is "out of fashion", isn't this also true for the freecirculation-of-capital model? * * Eric Toussaint is the co-ordinator of the Brussels-based Committee for the Cancellation of Third World Debt. This text is extracted from "La bourse ou la vie" ("Your stock market or your life"), published in French in March 1998, and due to appear in English by the end of 1998. (Translation from French by Raghu Krishnan)
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