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> MONTREAL - January 13, 1999
> Financial Warfare
> By Dr. Michel Chossudovsky
>
> "Practices of the unscrupulous money changers stand indicted in the court
> of
> public opinion, rejected by the hearts and minds of men."
> -- Franklin D. Roosevelt's First Inaugural Address, 1933
>
> In the post-Cold War era, humanity is undergoing an economic crisis of
> unprecedented scale, and it is leading to the rapid impoverishment of
> large
> sectors of the world population. The plunge of national currencies in
> virtually
> all major regions of the world has contributed to the destabilization of
> national economies and is precipitating entire countries into abysmal
> poverty.
>
> This is by far the most serious economic crisis in modern history. It is
> more
> devastating than the Great Depression of the 1930s, and its geo-political
> implications are far-reaching: economic dislocation has accompanied
> regional
> conflicts, fracturing national societies and, in some cases, destroying
> entire
> countries.
>
> The existence of a "global financial crisis" is casually denied by the
> Western
> media, and its social impacts are downplayed or distorted. International
> institutions, including the United Nations, deny the mounting tide of
> world
> poverty. "The progress in reducing poverty over the [late] 20th century is
> remarkable and unprecedented ... " states a 1997 United Nations
> Development
> Program, Human Development Report. The "consensus" is that the Western
> economy
> is "healthy" and that "market corrections" on Wall Street are largely
> attributable to the "Asian flu" and to Russia's troubled "transition to a
> free
> market economy."
>
> The worldwide scramble to appropriate wealth through "financial
> manipulation"
> is the source of economic turmoil and social devastation. In the words of
> renowned currency speculator and billionaire George Soros (who made 1.6
> billion
> dollars of speculative gains in the dramatic crash of the British pound in
> 1992): "Extending the market mechanism to all domains has the potential of
> destroying society." (See "Society Under Threat - Soros", The Guardian,
> London,
> October 31, 1997.)
>
> This manipulation of market forces by powerful actors constitutes a form
> of
> financial and economic warfare. No need to recolonize lost territory or
> send in
> invading armies. In the late 20th century, the outright "conquest of
> nations"
> (meaning the control over productive assets, labor, natural resources and
> institutions) can be carried out in an impersonal fashion from the
> corporate
> boardroom. "Financial warfare" applies complex speculative instruments,
> including the gamut of derivative trade, forward foreign exchange
> transactions,
> currency options, hedge funds, index funds, etc. Speculative instruments
> have
> been used with the ultimate purpose of capturing financial wealth and
> acquiring
> control over productive assets. In the words of Malaysia's Prime Minister
> Mahathir Mohamad: "This deliberate devaluation of the currency of a
> country by
> currency traders purely for profit is a serious denial of the rights of
> independent nations." (Statement at the Meeting of the Group of 15,
> Malacca,
> Malaysia, November 3, 1997, quoted in the South China Morning Post, Hong
> Kong,
> November 3, 1997.)
>
> The appropriation of global wealth through this manipulation of market
> forces
> is routinely supported by IMF macro-economic interventions, which serve to
> act
> almost concurrently, ruthlessly disrupting national economies all over the
> world. "Financial warfare" knows no territorial boundaries and does not
> limit
> its actions to besieging enemies or former enemies. In Korea, Indonesia
> and
> Thailand, the vaults of central banks were pillaged by institutional
> speculators while monetary authorities sought in vain to prop up their
> ailing
> currencies. In a matter of months, in 1997, more than 100 billion dollars
> of
> Asia's hard currency reserves had been confiscated and into private
> financial
> hands. In the wake of the currency devaluations, real earnings and
> employment
> plummeted virtually overnight, leading to mass poverty in countries which
> had
> in the post-War period registered significant economic and social
> progress.
>
> Trading in the foreign exchange market had destabilized national
> economies,
> thereby creating preconditions for plundering the Asian countries'
> productive
> assets by vulture-like foreign investors. (See Michael and Bill Totten,
> "Vulture Speculators", Our World, No. 197, Kawasaki, August 12, 1998.) In
> Thailand, 56 domestic banks and financial institutions were closed down on
> orders of the IMF. Unemployment virtually doubled overnight. (Nicola
> Bullard,
> Walden Bello and Kamal Malhotra, "Taming the Tigers: the IMF and the Asian
> Crisis", Special Issue on the IMF, Focus on Trade No. 23, Focus on Global
> South, Bangkok, March 1998.) Similarly, in Korea, the IMF "rescue
> operation"
> has unleashed a lethal chain of bankruptcies leading to the outright
> liquidation of so-called "troubled merchant banks." In the wake of the
> IMF's
> "mediation" (put in place in December 1997 after high-level consultations
> with
> the world's largest commercial and merchant banks) "an average of more
> than 200
> companies [were] shut down per day ... 4,000 workers every day were driven
> out
> onto streets as unemployed." (Korean Federation of Trade Unions,
> "Unbridled
> Freedom to Sack Workers is No Solution at All", Seoul, January 13, 1998.)
> Resulting from the credit freeze and "the instantaneous bank shut-down",
> some
> 15,000 bankruptcies are expected in 1998, including 90 percent of Korea's
> construction companies (with combined debts of $20 billion dollars to
> domestic
> financial institutions). (Song Jung tae, "Insolvency of Construction Firms
> Rises in 1998", Korea Herald, December 24, 1997; see Note 1 for more
> information.) South Korea's Parliament has been transformed into a "rubber
> stamp." If enabling legislation is not speedily enacted according to IMF
> deadlines, disbursements under the bailout will be suspended (a form of
> financial blackmail), threatening the danger of renewed currency
> speculation.
>
> In turn, the IMF-sponsored "exit program" (i.e.: forced bankruptcy) has
> deliberately contributed to fracturing the chaebols which are now invited
> to
> establish "strategic alliances with foreign firms" (meaning their eventual
> control by Western capital). With the devaluation, the cost of Korean
> labor has
> also tumbled: "It's now cheaper to buy one of these [high tech] companies
> than
> buy a factory -- and you get all the distribution, brand-name recognition
> and
> trained labor force free in the bargain ... "(Michael Hudson, Our World,
> Kawasaki, December 23, 1997.)
>
> The Demise of Central Banking
>
> In many regards, this worldwide crisis marks the demise of central
> banking,
> meaning the derogation of national economic sovereignty and the inability
> of
> the nation States to control money on behalf of their society. In other
> words,
> privately held money reserves in the hands of "institutional speculators"
> far
> exceeds the limited capabilities of the world's central banks. The latter,
> acting individually or collectively, are no longer able to fight the tide
> of
> speculative activity. Monetary policy is in the hands of private creditors
> who
> have the ability to freeze State budgets, paralyze the payments process,
> thwart
> the regular disbursement of wages to millions of workers (as in the former
> Soviet Union) and precipitate the collapse of production and social
> programs.
> As the crisis deepens, speculative raids on central banks are extending
> into
> China, Latin America, and the Middle East, with devastating economic and
> social
> consequences.
>
> This ongoing pillage of central bank reserves, however, is by no means
> limited
> to developing countries. It has also hit several Western countries
> including
> Canada and Australia where the monetary authorities have been incapable of
> stemming the slide of their national currencies. In Canada, billions of
> dollars
> were borrowed from private financiers to prop up central bank reserves in
> the
> wake of speculative assaults. In Japan-where the yen has tumbled to new
> lows-"the Korean scenario" is viewed (according to economist Michael
> Hudson),
> as a "dress rehearsal" for the take over of Japan's financial sector by a
> handful of Western investment banks. The big players are Goldman Sachs,
> Morgan
> Stanley, Deutsche Morgan Gruenfell among others who are buying up Japan's
> bad
> bank loans at less than ten percent of their face value. In recent months,
> both
> U.S. Secretary of the Treasury Robert Rubin and Secretary of State
> Madeleine K.
> Albright have exerted political pressure on Tokyo insisting "on nothing
> less
> than an immediate disposal of Japan's bad bank loans-preferably to U.S.
> and
> other foreign 'vulture investors' at distress prices. To achieve their
> objectives they are even pressuring Japan to rewrite its constitution,
> restructure its political system and cabinet and redesign its financial
> system
> ... Once foreign investors gain control of Japanese banks, these banks
> will
> move to take over Japanese industry ... " (Michael Hudson, "Big Bang is
> Culprit
> Behind Yen's Fall", Our World, No. 187, Kawasaki, July 28, 1998; see Note
> 2.)
>
> Creditors and Speculators
>
> The world's largest banks and brokerage houses are both creditors and
> institutional speculators. In the present context, they contribute
> (through
> their speculative assaults) to destabilizing national currencies, thereby
> boosting the volume of dollar denominated debts. They then reappear as
> creditors with a view to collecting these debts. Finally, they
> are called in as "policy advisors" or consultants in the IMF-World
> Bank-sponsored "bankruptcy programs" of which they are the ultimate
> beneficiaries. In Indonesia, for instance, amidst street rioting and in
> the
> wake of Suharto's resignation, the privatization of key sectors of the
> Indonesian economy ordered by the IMF was entrusted to eight of the
> world's
> largest merchant banks including Lehman Brothers, Credit Suisse-First
> Boston,
> Goldman Sachs, and UBS/SBC Warburg Dillon Read. (See Nicola Bullard,
> Walden
> Bello and Kamal Malhotra, "Taming of the Tigers: the IMF and the Asian
> Crisis,"
> Special Issue on the IMF, Focus on Trade No. 23, Focus on the Global
> South,
> Bangkok, March 1998.) An apt analogy might be the following: the world's
> largest money managers are setting countries on fire, and are then called
> in
> (under the IMF "rescue plan") to extinguish the blaze. They ultimately
> decide
> which enterprises are to be closed down and which are to be auctioned off
> to
> foreign investors (read: themselves) at bargain prices.
>
> Who Funds the IMF Bailouts?
>
> Under repeated speculative assaults, Asian central banks had entered into
> multi-billion dollar contracts (in the forward foreign exchange market) in
> a
> vain attempt to protect their currency. With the total depletion of their
> hard
> currency reserves, the monetary authorities were forced to borrow large
> amounts
> of money under the IMF bailout agreement.
>
> Following a scheme devised during the Mexican crisis of 1994-1995, the
> bailout
> money, however, is not intended "to rescue the country"; in fact, the
> money
> never entered Korea, Thailand or Indonesia; it was earmarked to reimburse
> the
> "institutional speculators", to ensure that they would be able to collect
> their
> multibillion dollar loot. In this way, the Asian tigers are tamed by their
> financial masters, and have been "locked up" into servicing massive
> dollar-denominated debts well into the third millennium.
>
> Where did the money come from to finance these multibillion dollar
> operations?
> Only a small portion of that money comes from IMF resources. Starting with
> the
> Mexican 1995 bailout, G7 countries including the U.S. Treasury were called
> upon
> to make large lump-sum contributions to these IMF-sponsored rescue. (see
> Note
> 3.) In an ironic twist, those who guarantee the issuing of public debt (to
> finance the bailout) are those who will ultimately appropriate the loot
> (as the
> creditors of Korea or Thailand, for example). These speculators, then, are
> the
> ultimate recipients of the bailout money (essentially a "safety net" for
> the
> institutional speculator. As a result of this vicious circle, a handful of
> commercial banks and brokerage houses have enriched themselves beyond
> bounds;
> they have also increased their stranglehold over governments and
> politicians
> around the world.
>
> Strong Economic Medicine
>
> Since the 1994-1995 Mexican crisis, the IMF has played a crucial role in
> shaping the "financial environment" in which the global banks and money
> managers wage their speculative raids. The global banks are craving access
> to
> inside information. Successful speculative attacks require the concurrent
> implementation on their behalf of "strong economic medicine" under the IMF
> bailout agreements. The "big six" Wall Street commercial banks (including
> Chase, Bank America, Citicorp, and J. P. Morgan) and the "big five"
> merchant
> banks (Goldman Sachs, Lehman Brothers, Morgan Stanley, and Salomon Smith
> Barney) were consulted on the clauses to be included in the bailout
> agreements.
> In the case of Korea's short-term debt, Wall Street's largest financial
> institutions were called in on Christmas Eve (24 December 1997), for high
> level
> talks at the Federal Reserve Bank of New York. (Financial Times, London,
> December 27-28, 1997, p.3.)
>
> The global banks have a direct stake in the decline of national
> currencies. In
> April 1997, barely two months before the onslaught of the Asian currency
> crisis, the Institute of International Finance (IIF), a Washington-based
> think-tank representing the interests of some 290 global banks and
> brokerage
> houses had "urged authorities in emerging markets to counter upward
> exchange
> rate pressures where needed..."(Institute of International Finance, Report
> of
> the Multilateral Agencies Group, IIF Annual Report, Washington, 1997.)
> This
> request (communicated in a formal letter to the IMF) hints in no uncertain
> terms that the IMF should advocate an environment in which national
> currencies
> are allowed to slide. (see Note 4.) Indonesia was ordered by the IMF to
> unpeg
> its currency barely three months before the rupiah's dramatic plunge. In
> the
> words of American billionaire and presidential candidate Steve Forbes:
> "Did the
> IMF help precipitate the crisis? This agency advocates openness and
> transparency for national economies, yet it rivals the CIA in cloaking its
> own
> operations. Did it, for instance, have secret conversations with Thailand,
> advocating the devaluation that instantly set off the catastrophic chain
> of
> events? ... Did IMF prescriptions exacerbate the illness? These countries'
> moneys were knocked down to absurdly low levels." (Steven Forbes, "Why
> Reward
> Bad Behavior", editorial, Forbes Magazine, May 4, 1998.)
>
> Deregulating Capital Movements
>
> The international rules regulating the movements of money and capital
> (across
> international borders) contribute to shaping the "financial battlefields"
> on
> which banks and speculators wage their deadly assaults. In their worldwide
> quest to appropriate wealth, global banks and multinational corporations
> have
> actively pressured for the outright deregulation of international capital
> flows
> including the movement of "hot" and "dirty" money.("Hot money" is
> speculative
> capital; "dirty money"is the proceeds of organized crime which is
> routinely
> laundered in the international financial system.) Caving into these
> demands
> (after hasty consultations with G7 finance ministers), a formal verdict to
> deregulate capital movements was taken by the IMF Interim Committee in
> Washington in April 1998. The official communique *** stated that the IMF
> will
> proceed with the Amendment of its Articles with a view to "making the
> liberalization of capital movements one of the purposes of the Fund and
> extending, as needed, the Fund's jurisdiction for this purpose."
> (International
> Monetary Fund, Communique of the Interim Committee of the Board of
> Governors of
> the International Monetary Fund, Press Release No. 98/14 Washington, April
> 16,
> 1998; see Note 5.) The IMF managing director, Mr. Michel Camdessus
> nonetheless
> conceded in a dispassionate tone that "a number of developing countries
> may
> come under speculative attacks after opening their capital account" while
> reiterating that this can be avoided by the adoption of "sound
> macroeconomic
> policies and strong financial systems in member countries" (the IMF's
> standard
> "economic cure for disaster"). (See Communique of the IMF Interim
> Committee,
> Hong Kong, September 21, 1997.)
>
> The IMF's resolve to deregulate capital movements was taken behind closed
> doors
> (conveniently removed from the public eye and with very little press
> coverage)
> barely two weeks before citizens' groups from around the world gathered in
> late
> April 1998 in mass demonstrations in Paris opposing the controversial
> Multilateral Agreement on Investment (MAI) under OECD auspices. (See
> SOURCES'
> report, "The Global Goldfingers Super NAFTA Plot: Will it Create a
> Widespread
> Political, Social, and Security Crisis?" by Dr. Clifford A. Kiracofe) This
> agreement would have granted entrenched rights to banks and multinational
> corporations overriding national laws on foreign investment as well
> derogating
> the fundamental rights of citizens. The MAI constitutes an act of
> capitulation
> by democratic government to banks and multinational corporations.
>
> The timing was right on course. While the approval of the MAI had been
> temporarily stalled, the proposed deregulation of foreign investment
> through a
> more expedient avenue had been officially launched. The Amendment of the
> Articles derogate the powers of national governments to regulate foreign
> investment. It would also nullify the efforts of the worldwide citizens'
> campaign against the MAI. The deregulation of foreign investment would be
> achieved ("with a stroke of a pen") without the need for a cumbersome
> multilateral agreement under OECD or WTO auspices and without the legal
> hassle
> of a global investment treaty entrenched in international law.
>
> Creating a Global Financial Watchdog
>
> As the aggressive scramble for global wealth unfolds and the financial
> crisis
> reaches dangerous proportions, international banks and speculators are
> anxious
> to play a more direct role in shaping financial structures to their
> advantage,
> along with "policing" economic reforms at the country level. Free market
> conservatives in the United States (associated with the Republican Party)
> have
> blamed the IMF for its reckless behavior. Disregarding the IMF's
> intergovernmental status, they are demanding greater U.S. control over the
> IMF.
> They have also hinted that the IMF should henceforth perform a more placid
> role
> (similar to that of the bond rate agencies such as Moody's or Standard and
> Poor) while consigning the financing of the multi-billion dollar bailouts
> to
> the private banking sector.(Steven Forbes, "Why Reward Bad Behavior",
> editorial, Forbes Magazine, May 4, 1998.)
>
> Discussed behind closed doors in April 1998, a more perceptive initiative
> (couched in softer language) was put forth by the world's largest banks
> and
> investment houses through their Washington mouthpiece (the Institute of
> International Finance). The banks proposal consists in the creation of a
> "Financial Watchdog -- a so-called "Private Sector Advisory Council" --
> with a
> view to routinely supervising the activities of the IMF. "The Institute
> [of
> International Finance], with its nearly universal membership of leading
> private
> financial firms, stands ready to work with the official community to
> advance
> this process." (Institute of International Finance, "East Asian Crises
> Calls
> for New International Measures, Say Financial Leaders", press release,
> April
> 18, 1998.) Responding to the global banks initiative, the IMF has called
> for
> concrete "steps to strengthen private sector involvement" in crisis
> management-what might be interpreted as a "power sharing arrangement"
> between
> the IMF and the global banks. (IMF, Communique of the Interim Committee of
> the
> Board of Governors, April 16, 1998.)
> The international banking community has also set up it own high level
> "Steering
> Committee on Emerging Markets Finance" integrated by some of the world's
> most
> powerful financiers including William Rhodes, Vice Chairman of Citibank,
> and
> Sir David Walker, Chairman of Morgan Stanley.
>
> The hidden agenda behind these various initiatives is to gradually
> transform
> the IMF-from its present status as an inter-governmental body-into a full
> fledged bureaucracy which more effectively serves the interests of the
> global
> banks. More importantly, the banks and speculators want access to the
> details
> of IMF negotiations with member governments which will enable them to
> carefully
> position their assaults in financial markets both prior and in the wake of
> an
> IMF bailout agreement. The global banks (pointing to the need for
> "transparency") have called upon "the IMF to provide valuable insights [on
> its
> dealings with national governments] without revealing confidential
> information
> ... " No matter what that sentence sounds like, what they really do want
> is
> privileged inside information.(see Note 6.)
>
> The ongoing financial crisis is not only conducive to the demise of State
> institutions all over the world, it is also a step-by-step dismantling
> (and
> possible privatization) of post-War institutions established by the
> founding
> fathers at the Bretton Woods Conference in 1944. In striking contrast with
> the
> IMF's present-day destructive role, these institutions were intended by
> their
> architects to safeguard the stability of national economies. In the words
> of
> Henry Morgenthau, U.S. Secretary of the Treasury in his closing statement
> to
> the Conference (July 22, 1944): "We came here to work out methods which
> would
> do away with economic evils -- the competitive currency devaluation and
> destructive impediments to trade -- which preceded the present war. We
> have
> succeeded in this effort."(Closing address, Bretton Woods Conference,
> Bretton
> Woods, New Hampshire, July 22, 1944. The IMF's present role is in
> violation of
> its Articles of Agreement.)
>
> NOTES
>
> 1. Legislation (following IMF directives) was approved which dismantles
> the
> extensive powers of the Ministry of Finance while also stripping the
> Ministry
> of its financial regulatory and supervisory functions. The financial
> sector had
> been opened up, a
> Financial Supervisory Council under the advice of Western merchant banks
> arbitrarily decides the fate of Korean banks. Selected banks (the lucky
> ones)
> are to be "made more attractive" by earmarking a significant chunk of the
> bailout money to finance (subsidise) their acquisition at depressed prices
> by
> foreign buyers; i.e.: the shopping-spree by Western financiers is funded
> by the
> government on borrowed money from Western financiers.
>
> 2. See also Secretary of State Madeleine K. Albright and Japanese Foreign
> Minister Keizo Obuchi, Joint Press Conference, Ikura House, Tokyo, July 4,
> 1998
> contained in Official Press Release, U.S. Department of State, Washington,
> July
> 7, l998.
>
> 3. On July 15, 1998, the Republican dominated House of Representatives
> slashed
> the Clinton Administration request of 18 billion dollar in additional U.S.
> funding to the IMF to 3.5 billion. Part of the U.S. contribution to the
> bailouts would be financed under the Foreign Exchange Stabilization Fund
> of the
> Treasury. The U.S. Congress has estimated the increase in the U.S. public
> debt
> and the burden on taxpayers of the U.S. contributions to the Asian
> bailouts.
>
> 4. Letter addressed by the managing director of the Institute of
> International
> Finance, Mr. Charles Dallara, to Mr. Philip Maystadt, Chairman of the IMF
> Interim Committee, April 1997, quoted in Institute of International
> Finance,
> 1997 Annual Report, Washington, 1997.
>
> 5. The controversial proposal to amend its articles on "capital account
> liberalization" had initially been put forth in April 1997.
>
> 6. The IIF proposes that global banks and brokerage houses could for this
> purpose "be rotated and selected through a neutral process [to ensure
> confidentiality], and a regular exchange of views [which] is unlikely to
> reveal
> dramatic surprises that turn markets abruptly ... "In this era of
> globalization, both market participants and multilateral
> institutions have crucial roles to play; the more they understand each
> other,
> the greater the prospects for better functioning of markets and financial
> stability ... " See Letter of Charles Dallara, Managing Director of the
> IIF to
> Mr. Philip Maystadt, Chairman of IMF Interim Committee, IIF, Washington, 8
> April 1998.
>
> Dr. Michel Chossudovsky is a Professor of Economics at the University of
> Ottawa
> and a Research Fellow at the Center of Developing Area Studies,
> McGill University, Montreal. His latest book, The Globalization of
> Poverty,
> Impacts of IMF and World Bank Reforms (Third World Network, Penang, Zed
> Books,
> London) has been translated into several languages.
>
> Dr. Chossudovsky has taught as Visiting Professor at academic institutions
> in
> Western Europe, Latin America, and Southeast Asia, and has acted as
> economic
> adviser to governments of developing countries and has worked as a
> consultant
> for several international organizations including the United Nations
> Development Program, the African Development Bank, the United Nations
> African
> Institute for Economic Development and Planning, the United Nations
> Population
> Fund, the International Labour Organization, the World Health
> Organization, and
> the United Nations Economic Commission for Latin America and the
> Caribbean.
>
> FOR FURTHER INFORMATION, SEE:
>
> The effects of neoliberal dogma on global economy:
> http://www.heise.de/tp/english/special/eco/6099/1.html
>
> IMF Korea bailout conditions imposed by the IMF make South Korean firms a
> bargain for foreign investors:
> http://www.heise.de/tp/english/special/eco/6225/1.html
>
> http://www.heise.de/tp/english/special/eco/6223/1.html <<ATT00004.html>>
>
Jeff Hearon
MONTREAL - January 13, 1999Financial Warfare
By Dr. Michel Chossudovsky
"Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men."
-- Franklin D. Roosevelt's First Inaugural Address, 1933
In the post-Cold War era, humanity is undergoing an economic crisis of unprecedented scale, and it is leading to the rapid impoverishment of large sectors of the world population. The plunge of national currencies in virtually all major regions of the world has contributed to the destabilization of national economies and is precipitating entire countries into abysmal poverty.
This is by far the most serious economic crisis in modern history. It is more devastating than the Great Depression of the 1930s, and its geo-political implications are far-reaching: economic dislocation has accompanied regional conflicts, fracturing national societies and, in some cases, destroying entire countries.
The existence of a "global financial crisis" is casually denied by the Western media, and its social impacts are downplayed or distorted. International institutions, including the United Nations, deny the mounting tide of world poverty. "The progress in reducing poverty over the [late] 20th century is remarkable and unprecedented ... " states a 1997 United Nations Development Program, Human Development Report. The "consensus" is that the Western economy is "healthy" and that "market corrections" on Wall Street are largely attributable to the "Asian flu" and to Russia's troubled "transition to a free market economy."
The worldwide scramble to appropriate wealth through "financial manipulation" is the source of economic turmoil and social devastation. In the words of renowned currency speculator and billionaire George Soros (who made 1.6 billion dollars of speculative gains in the dramatic crash of the British pound in 1992): "Extending the market mechanism to all domains has the potential of destroying society." (See "Society Under Threat - Soros", The Guardian, London, October 31, 1997.)
This manipulation of market forces by powerful actors constitutes a form of financial and economic warfare. No need to recolonize lost territory or send in invading armies. In the late 20th century, the outright "conquest of nations" (meaning the control over productive assets, labor, natural resources and institutions) can be carried out in an impersonal fashion from the corporate boardroom. "Financial warfare" applies complex speculative instruments, including the gamut of derivative trade, forward foreign exchange transactions, currency options, hedge funds, index funds, etc. Speculative instruments have been used with the ultimate purpose of capturing financial wealth and acquiring control over productive assets. In the words of Malaysia's Prime Minister Mahathir Mohamad: "This deliberate devaluation of the currency of a country by currency traders purely for profit is a serious denial of the rights of independent nations." (Statement at the Meeting of the Group of 15, Malacca, Malaysia, November 3, 1997, quoted in the South China Morning Post, Hong Kong, November 3, 1997.)
The appropriation of global wealth through this manipulation of market forces is routinely supported by IMF macro-economic interventions, which serve to act almost concurrently, ruthlessly disrupting national economies all over the world. "Financial warfare" knows no territorial boundaries and does not limit its actions to besieging enemies or former enemies. In Korea, Indonesia and Thailand, the vaults of central banks were pillaged by institutional speculators while monetary authorities sought in vain to prop up their ailing currencies. In a matter of months, in 1997, more than 100 billion dollars of Asia's hard currency reserves had been confiscated and into private financial hands. In the wake of the currency devaluations, real earnings and employment plummeted virtually overnight, leading to mass poverty in countries which had in the post-War period registered significant economic and social progress.
Trading in the foreign exchange market had destabilized national economies, thereby creating preconditions for plundering the Asian countries' productive assets by vulture-like foreign investors. (See Michael and Bill Totten, "Vulture Speculators", Our World, No. 197, Kawasaki, August 12, 1998.) In Thailand, 56 domestic banks and financial institutions were closed down on orders of the IMF. Unemployment virtually doubled overnight. (Nicola Bullard, Walden Bello and Kamal Malhotra, "Taming the Tigers: the IMF and the Asian Crisis", Special Issue on the IMF, Focus on Trade No. 23, Focus on Global South, Bangkok, March 1998.) Similarly, in Korea, the IMF "rescue operation" has unleashed a lethal chain of bankruptcies leading to the outright liquidation of so-called "troubled merchant banks." In the wake of the IMF's "mediation" (put in place in December 1997 after high-level consultations with the world's largest commercial and merchant banks) "an average of more than 200 companies [were] shut down per day ... 4,000 workers every day were driven out onto streets as unemployed." (Korean Federation of Trade Unions, "Unbridled Freedom to Sack Workers is No Solution at All", Seoul, January 13, 1998.) Resulting from the credit freeze and "the instantaneous bank shut-down", some 15,000 bankruptcies are expected in 1998, including 90 percent of Korea's construction companies (with combined debts of $20 billion dollars to domestic financial institutions). (Song Jung tae, "Insolvency of Construction Firms Rises in 1998", Korea Herald, December 24, 1997; see Note 1 for more information.) South Korea's Parliament has been transformed into a "rubber stamp." If enabling legislation is not speedily enacted according to IMF deadlines, disbursements under the bailout will be suspended (a form of financial blackmail), threatening the danger of renewed currency speculation.
In turn, the IMF-sponsored "exit program" (i.e.: forced bankruptcy) has deliberately contributed to fracturing the chaebols which are now invited to establish "strategic alliances with foreign firms" (meaning their eventual control by Western capital). With the devaluation, the cost of Korean labor has also tumbled: "It's now cheaper to buy one of these [high tech] companies than buy a factory -- and you get all the distribution, brand-name recognition and trained labor force free in the bargain ... "(Michael Hudson, Our World, Kawasaki, December 23, 1997.)
The Demise of Central Banking
In many regards, this worldwide crisis marks the demise of central banking, meaning the derogation of national economic sovereignty and the inability of the nation States to control money on behalf of their society. In other words, privately held money reserves in the hands of "institutional speculators" far exceeds the limited capabilities of the world's central banks. The latter, acting individually or collectively, are no longer able to fight the tide of speculative activity. Monetary policy is in the hands of private creditors who have the ability to freeze State budgets, paralyze the payments process, thwart the regular disbursement of wages to millions of workers (as in the former Soviet Union) and precipitate the collapse of production and social programs. As the crisis deepens, speculative raids on central banks are extending into China, Latin America, and the Middle East, with devastating economic and social consequences.
This ongoing pillage of central bank reserves, however, is by no means limited to developing countries. It has also hit several Western countries including Canada and Australia where the monetary authorities have been incapable of stemming the slide of their national currencies. In Canada, billions of dollars were borrowed from private financiers to prop up central bank reserves in the wake of speculative assaults. In Japan-where the yen has tumbled to new lows-"the Korean scenario" is viewed (according to economist Michael Hudson), as a "dress rehearsal" for the take over of Japan's financial sector by a handful of Western investment banks. The big players are Goldman Sachs, Morgan Stanley, Deutsche Morgan Gruenfell among others who are buying up Japan's bad bank loans at less than ten percent of their face value. In recent months, both U.S. Secretary of the Treasury Robert Rubin and Secretary of State Madeleine K. Albright have exerted political pressure on Tokyo insisting "on nothing less than an immediate disposal of Japan's bad bank loans-preferably to U.S. and other foreign 'vulture investors' at distress prices. To achieve their objectives they are even pressuring Japan to rewrite its constitution, restructure its political system and cabinet and redesign its financial system ... Once foreign investors gain control of Japanese banks, these banks will move to take over Japanese industry ... " (Michael Hudson, "Big Bang is Culprit Behind Yen's Fall", Our World, No. 187, Kawasaki, July 28, 1998; see Note 2.)
Creditors and Speculators
The world's largest banks and brokerage houses are both creditors and institutional speculators. In the present context, they contribute (through their speculative assaults) to destabilizing national currencies, thereby boosting the volume of dollar denominated debts. They then reappear as creditors with a view to collecting these debts. Finally, they
are called in as "policy advisors" or consultants in the IMF-World Bank-sponsored "bankruptcy programs" of which they are the ultimate beneficiaries. In Indonesia, for instance, amidst street rioting and in the wake of Suharto's resignation, the privatization of key sectors of the Indonesian economy ordered by the IMF was entrusted to eight of the world's largest merchant banks including Lehman Brothers, Credit Suisse-First Boston, Goldman Sachs, and UBS/SBC Warburg Dillon Read. (See Nicola Bullard, Walden Bello and Kamal Malhotra, "Taming of the Tigers: the IMF and the Asian Crisis," Special Issue on the IMF, Focus on Trade No. 23, Focus on the Global South, Bangkok, March 1998.) An apt analogy might be the following: the world's largest money managers are setting countries on fire, and are then called in (under the IMF "rescue plan") to extinguish the blaze. They ultimately decide which enterprises are to be closed down and which are to be auctioned off to foreign investors (read: themselves) at bargain prices.
Who Funds the IMF Bailouts?
Under repeated speculative assaults, Asian central banks had entered into multi-billion dollar contracts (in the forward foreign exchange market) in a vain attempt to protect their currency. With the total depletion of their hard currency reserves, the monetary authorities were forced to borrow large amounts of money under the IMF bailout agreement.
Following a scheme devised during the Mexican crisis of 1994-1995, the bailout money, however, is not intended "to rescue the country"; in fact, the money never entered Korea, Thailand or Indonesia; it was earmarked to reimburse the "institutional speculators", to ensure that they would be able to collect their multibillion dollar loot. In this way, the Asian tigers are tamed by their financial masters, and have been "locked up" into servicing massive dollar-denominated debts well into the third millennium.
Where did the money come from to finance these multibillion dollar operations? Only a small portion of that money comes from IMF resources. Starting with the Mexican 1995 bailout, G7 countries including the U.S. Treasury were called upon to make large lump-sum contributions to these IMF-sponsored rescue. (see Note 3.) In an ironic twist, those who guarantee the issuing of public debt (to finance the bailout) are those who will ultimately appropriate the loot (as the creditors of Korea or Thailand, for example). These speculators, then, are the ultimate recipients of the bailout money (essentially a "safety net" for the institutional speculator. As a result of this vicious circle, a handful of commercial banks and brokerage houses have enriched themselves beyond bounds; they have also increased their stranglehold over governments and politicians around the world.
Strong Economic Medicine
Since the 1994-1995 Mexican crisis, the IMF has played a crucial role in shaping the "financial environment" in which the global banks and money managers wage their speculative raids. The global banks are craving access to inside information. Successful speculative attacks require the concurrent implementation on their behalf of "strong economic medicine" under the IMF bailout agreements. The "big six" Wall Street commercial banks (including Chase, Bank America, Citicorp, and J. P. Morgan) and the "big five" merchant banks (Goldman Sachs, Lehman Brothers, Morgan Stanley, and Salomon Smith Barney) were consulted on the clauses to be included in the bailout agreements. In the case of Korea's short-term debt, Wall Street's largest financial institutions were called in on Christmas Eve (24 December 1997), for high level talks at the Federal Reserve Bank of New York. (Financial Times, London, December 27-28, 1997, p.3.)
The global banks have a direct stake in the decline of national currencies. In April 1997, barely two months before the onslaught of the Asian currency crisis, the Institute of International Finance (IIF), a Washington-based think-tank representing the interests of some 290 global banks and brokerage houses had "urged authorities in emerging markets to counter upward exchange rate pressures where needed..."(Institute of International Finance, Report of the Multilateral Agencies Group, IIF Annual Report, Washington, 1997.) This request (communicated in a formal letter to the IMF) hints in no uncertain terms that the IMF should advocate an environment in which national currencies are allowed to slide. (see Note 4.) Indonesia was ordered by the IMF to unpeg its currency barely three months before the rupiah's dramatic plunge. In the words of American billionaire and presidential candidate Steve Forbes: "Did the IMF help precipitate the crisis? This agency advocates openness and transparency for national economies, yet it rivals the CIA in cloaking its own operations. Did it, for instance, have secret conversations with Thailand, advocating the devaluation that instantly set off the catastrophic chain of events? ... Did IMF prescriptions exacerbate the illness? These countries' moneys were knocked down to absurdly low levels." (Steven Forbes, "Why Reward Bad Behavior", editorial, Forbes Magazine, May 4, 1998.)
Deregulating Capital Movements
The international rules regulating the movements of money and capital (across international borders) contribute to shaping the "financial battlefields" on which banks and speculators wage their deadly assaults. In their worldwide quest to appropriate wealth, global banks and multinational corporations have actively pressured for the outright deregulation of international capital flows including the movement of "hot" and "dirty" money.("Hot money" is speculative capital; "dirty money"is the proceeds of organized crime which is routinely laundered in the international financial system.) Caving into these demands (after hasty consultations with G7 finance ministers), a formal verdict to deregulate capital movements was taken by the IMF Interim Committee in Washington in April 1998. The official communiqu� *** stated that the IMF will proceed with the Amendment of its Articles with a view to "making the liberalization of capital movements one of the purposes of the Fund and extending, as needed, the Fund's jurisdiction for this purpose." (International Monetary Fund, Communique of the Interim Committee of the Board of Governors of the International Monetary Fund, Press Release No. 98/14 Washington, April 16, 1998; see Note 5.) The IMF managing director, Mr. Michel Camdessus nonetheless conceded in a dispassionate tone that "a number of developing countries may come under speculative attacks after opening their capital account" while reiterating that this can be avoided by the adoption of "sound macroeconomic policies and strong financial systems in member countries" (the IMF's standard "economic cure for disaster"). (See Communique of the IMF Interim Committee, Hong Kong, September 21, 1997.)
The IMF's resolve to deregulate capital movements was taken behind closed doors (conveniently removed from the public eye and with very little press coverage) barely two weeks before citizens' groups from around the world gathered in late April 1998 in mass demonstrations in Paris opposing the controversial Multilateral Agreement on Investment (MAI) under OECD auspices. (See SOURCES' report, "The Global Goldfingers Super NAFTA Plot: Will it Create a Widespread Political, Social, and Security Crisis?" by Dr. Clifford A. Kiracofe) This agreement would have granted entrenched rights to banks and multinational corporations overriding national laws on foreign investment as well derogating the fundamental rights of citizens. The MAI constitutes an act of capitulation by democratic government to banks and multinational corporations.
The timing was right on course. While the approval of the MAI had been temporarily stalled, the proposed deregulation of foreign investment through a more expedient avenue had been officially launched. The Amendment of the Articles derogate the powers of national governments to regulate foreign investment. It would also nullify the efforts of the worldwide citizens' campaign against the MAI. The deregulation of foreign investment would be achieved ("with a stroke of a pen") without the need for a cumbersome multilateral agreement under OECD or WTO auspices and without the legal hassle of a global investment treaty entrenched in international law.
Creating a Global Financial Watchdog
As the aggressive scramble for global wealth unfolds and the financial crisis reaches dangerous proportions, international banks and speculators are anxious to play a more direct role in shaping financial structures to their advantage, along with "policing" economic reforms at the country level. Free market conservatives in the United States (associated with the Republican Party) have blamed the IMF for its reckless behavior. Disregarding the IMF's intergovernmental status, they are demanding greater U.S. control over the IMF. They have also hinted that the IMF should henceforth perform a more placid role (similar to that of the bond rate agencies such as Moody's or Standard and Poor) while consigning the financing of the multi-billion dollar bailouts to the private banking sector.(Steven Forbes, "Why Reward Bad Behavior", editorial, Forbes Magazine, May 4, 1998.)
Discussed behind closed doors in April 1998, a more perceptive initiative (couched in softer language) was put forth by the world's largest banks and investment houses through their Washington mouthpiece (the Institute of International Finance). The banks proposal consists in the creation of a "Financial Watchdog -- a so-called "Private Sector Advisory Council" -- with a view to routinely supervising the activities of the IMF. "The Institute [of International Finance], with its nearly universal membership of leading private financial firms, stands ready to work with the official community to advance this process." (Institute of International Finance, "East Asian Crises Calls for New International Measures, Say Financial Leaders", press release, April 18, 1998.) Responding to the global banks initiative, the IMF has called for concrete "steps to strengthen private sector involvement" in crisis management-what might be interpreted as a "power sharing arrangement" between the IMF and the global banks. (IMF, Communique of the Interim Committee of the Board of Governors, April 16, 1998.)
The international banking community has also set up it own high level "Steering Committee on Emerging Markets Finance" integrated by some of the world's most powerful financiers including William Rhodes, Vice Chairman of Citibank, and Sir David Walker, Chairman of Morgan Stanley.
The hidden agenda behind these various initiatives is to gradually transform the IMF-from its present status as an inter-governmental body-into a full fledged bureaucracy which more effectively serves the interests of the global banks. More importantly, the banks and speculators want access to the details of IMF negotiations with member governments which will enable them to carefully position their assaults in financial markets both prior and in the wake of an IMF bailout agreement. The global banks (pointing to the need for "transparency") have called upon "the IMF to provide valuable insights [on its dealings with national governments] without revealing confidential information ... " No matter what that sentence sounds like, what they really do want is privileged inside information.(see Note 6.)
The ongoing financial crisis is not only conducive to the demise of State institutions all over the world, it is also a step-by-step dismantling (and possible privatization) of post-War institutions established by the founding fathers at the Bretton Woods Conference in 1944. In striking contrast with the IMF's present-day destructive role, these institutions were intended by their architects to safeguard the stability of national economies. In the words of Henry Morgenthau, U.S. Secretary of the Treasury in his closing statement to the Conference (July 22, 1944): "We came here to work out methods which would do away with economic evils -- the competitive currency devaluation and destructive impediments to trade -- which preceded the present war. We have succeeded in this effort."(Closing address, Bretton Woods Conference, Bretton Woods, New Hampshire, July 22, 1944. The IMF's present role is in violation of its Articles of Agreement.)
NOTES
1. Legislation (following IMF directives) was approved which dismantles the extensive powers of the Ministry of Finance while also stripping the Ministry of its financial regulatory and supervisory functions. The financial sector had been opened up, a
Financial Supervisory Council under the advice of Western merchant banks arbitrarily decides the fate of Korean banks. Selected banks (the lucky ones) are to be "made more attractive" by earmarking a significant chunk of the bailout money to finance (subsidise) their acquisition at depressed prices by foreign buyers; i.e.: the shopping-spree by Western financiers is funded by the government on borrowed money from Western financiers.
2. See also Secretary of State Madeleine K. Albright and Japanese Foreign Minister Keizo Obuchi, Joint Press Conference, Ikura House, Tokyo, July 4, 1998 contained in Official Press Release, U.S. Department of State, Washington, July 7, l998.
3. On July 15, 1998, the Republican dominated House of Representatives slashed the Clinton Administration request of 18 billion dollar in additional U.S. funding to the IMF to 3.5 billion. Part of the U.S. contribution to the bailouts would be financed under the Foreign Exchange Stabilization Fund of the Treasury. The U.S. Congress has estimated the increase in the U.S. public debt and the burden on taxpayers of the U.S. contributions to the Asian bailouts.
4. Letter addressed by the managing director of the Institute of International Finance, Mr. Charles Dallara, to Mr. Philip Maystadt, Chairman of the IMF Interim Committee, April 1997, quoted in Institute of International Finance, 1997 Annual Report, Washington, 1997.
5. The controversial proposal to amend its articles on "capital account liberalization" had initially been put forth in April 1997.
6. The IIF proposes that global banks and brokerage houses could for this purpose "be rotated and selected through a neutral process [to ensure confidentiality], and a regular exchange of views [which] is unlikely to reveal dramatic surprises that turn markets abruptly ... "In this era of globalization, both market participants and multilateral
institutions have crucial roles to play; the more they understand each other, the greater the prospects for better functioning of markets and financial stability ... " See Letter of Charles Dallara, Managing Director of the IIF to Mr. Philip Maystadt, Chairman of IMF Interim Committee, IIF, Washington, 8 April 1998.
Dr. Michel Chossudovsky is a Professor of Economics at the University of Ottawa and a Research Fellow at the Center of Developing Area Studies,
McGill University, Montreal. His latest book, The Globalization of Poverty, Impacts of IMF and World Bank Reforms (Third World Network, Penang, Zed Books, London) has been translated into several languages.
Dr. Chossudovsky has taught as Visiting Professor at academic institutions in Western Europe, Latin America, and Southeast Asia, and has acted as economic adviser to governments of developing countries and has worked as a consultant for several international organizations including the United Nations Development Program, the African Development Bank, the United Nations African Institute for Economic Development and Planning, the United Nations Population Fund, the International Labour Organization, the World Health Organization, and the United Nations Economic Commission for Latin America and the Caribbean.
FOR FURTHER INFORMATION, SEE:
The effects of neoliberal dogma on global economy: http://www.heise.de/tp/english/special/eco/6099/1.html
IMF Korea bailout conditions imposed by the IMF make South Korean firms a bargain for foreign investors:
http://www.heise.de/tp/english/special/eco/6225/1.html
http://www.heise.de/tp/english/special/eco/6223/1.html
