IMF: Helping hand or kiss of death? The global capitalist crisis (Pt IV) The following article was published in "The Guardian", newspaper of the Communist Party of Australia in its issue of Wednesday, November 25th, 1998. Contact address: 65 Campbell Street, Surry Hills. Sydney. 2010 Australia. Fax: (612) 9281 5795. Email: <[EMAIL PROTECTED]> Webpage: http://www.peg.apc.org/~guardian Subscription rates on request. ****************************** By Anna Pha According to the annual report of the International Monetary Fund "the Asian financial crisis started in Thailand with the baht coming under a series of increasingly serious attacks in May 1997, and the markets losing confidence in the economy". ("Annual Report 1998", p.27) Since those first attacks on the baht we have seen the virtual destruction of whole economies, not by military invasions but economic warfare conducted by financial institutions with the "helping hand" of the IMF. The IMF is correct in pointing to a "series of increasingly serious attacks" on the baht. The attacks on the currency were by the very "markets" -- the hedge funds, banks and investors -- that the IMF refers to as "losing confidence". The manufacturing of a crisis is part of a strategy repeated in Indonesia, South Korea and elsewhere. First the currency is put under extreme downward pressure by the collective actions of the hedge funds and banks who flooded the market with the currency under attack. In the case of Thailand it was the baht. The government, under pressure from the markets, the IMF and Western advisers, agrees to float the currency which in some cases had been pegged to the US dollar and protected by some other controls. Once the currency is floated, the financial markets gain even more power and the attack becomes even fiercer. The Thai central bank, for example, attempted to keep up the exchange rate of the baht by buying large amounts but its resources could hardly match the combined might of hedge funds and the big international (mainly US and European) banks. The Thai central bank, once its foreign currency and gold reserves were drained, gave up leaving Thailand's currency totally to the mercy of the destructive markets. The devaluations that followed ranged from 30 to 80 percent, with serious ramifications for domestic businesses and the domestic finance sector. It became impossible to service foreign debts, most of which were money borrowed from foreign financial institutions or governments and was short-term. Kiss of death At this point the IMF offers a "rescue" package with onerous strings. These have the effect of worsening the crisis which gives the IMF the excuse to make more demands for "economic reforms". The "assistance" is meted out bit by bit while the IMF "monitors" the compliance of the government concerned in fulfilling IMF demands. The "aid" is often used to to bail out Western banks. IMF conditions The specific conditions imposed on the East Asian economies, in the name of "restoring investor confidence", include: * removal of restrictions on capital flows in and out of the country; * removal of restrictions on foreign trading in currency, bond and share markets; * removal of restrictions on foreign investment; * high interest rates (tight monetary policy); * restructuring of the financial system, with closure of "unviable" banks, recapitalisation of banks, removal of restrictions on the foreign ownership of banks and financial institutions; * reduction of budget deficits (tight fiscal policy); * abolition of subsidies on staple foods, fuel, etc; * cuts in expenditure on health, education and other social programs; * introduction of or an increase in value added taxes; * abolition of price controls (e.g. on staple foods); * emphasis on increasing exports (to the neglect of domestic needs) to raise revenue to repay debts; * privatisation of public enterprises to raise revenue to repay debts and open up public enterprises for foreign takeovers. * labour market "flexibility". According to the IMF these measures were necessary to "safeguard stability of national economies". But the real objectives had nothing to do with helping the local economies. Each dose of the IMF "medicine" brought further disaster, followed by even more insistent demands by the IMF. The measures were designed to reduce government intervention in the running of the economy, raise funds for the repayment of government debts, open up the economy for penetration by foreign corporations and create better conditions for the exploitation of labour and private profit-making. These are the same objectives as those set out in the discredited Multilateral Agreement on Investment. The combination of high interest rates and battered currencies had shattering effects on the people as well as on domestic businesses and economies as a whole. Willful destruction of economies It sent thousands of businesses bust as they could not service their loans nor afford credit for the running of their affairs. Millions of workers were thrown out of work. Around 60 percent of Indonesian businesses are now bankrupt or on the verge of bankruptcy. The failure of businesses triggered problems for the banks which could not meet their commitments to depositors nor service foreign loans. The IMF insisted that governments let the "markets" take their course or their next loan installment would be withheld. That the aim was to destroy, not save, the afflicted economies and open them up for penetration by US and other Western transnational corporations is confirmed by a prediction made by Jeffrey Garten, a senior official in the US Department of Commerce, during Clinton's first term in office -- before the crisis: "Most of these countries are going to go through a deep and dark tunnel and at the other end there is going to be a significantly different Asia in which American firms have achieved much deeper market penetration, much greater access." (Quoted by Walden Bello, Third World Network Features, in "Asia: back into underdevelopment?", Aug, 1998) Recolonisation The financial and economic crisis, largely manufactured or triggered by Western financial markets, is being used to recolonise Asian economies. More than US$100 billion of Asia's hard currency reserves were transferred to private financial hands in 1997, crippling the ability of central banks and governments to defend currencies. Gunships and missiles have been replaced by hedge funds, banks and the IMF. Economic blockades and war threats have not been abandoned and are being used against "recalcitrants" like Iraq, Libya, Iran, Cuba, North Korea and Yugoslavia. They are kept in reserve to threaten other countries as well. "Investment has never been so cheap as now", said Helmut Maucher, President of the International Chamber of Commerce (ICC) and Chairman of Nestle, urging big business to move into the shattered economies. "... the returns are long-term. I encourage everybody to go on with investment." Vultures descend It was not long before US, Australian and other corporations began snapping up bargains. Merrill Lynch, Goldman Sachs, the Travelers Group, Salomon Smith Barney, EDS, and Coca-Cola were among the first vultures to descend. Some of these corporations have links with the hedge funds that did much of the damage. Some might even have been directly involved in manipulating the markets. Maucher was quite confident that the measures inflicted on countries like Indonesia hardly affect international industry of the type he favoured. He speaks on behalf of the largest international global corporations, the ones who stand to benefit from the crisis. The losers are the millions of people and small domestic businesses who obviously don't count in his thinking. Highly successful electronics, textile and other industries of the East Asian countries have been destroyed but this helps to resolve the global crisis of over-production in the interests of US, European and Japanese capital. (see Pt II of this series). It is a classic example of the destruction of capital as described by Marx during a period of crisis in which capital attempts to raise its rate of profit and find new investments for growth even if this is at the expense of other capitalists. The hypocrisy and conscious intent behind the policies forced on the East Asian countries is revealed when comparisons are made with the advice and demands made on Japan. If Japanese banks had been forced into bankruptcy and actions taken to destroy the Japanese economy it would have hurt Maucher's interests and those of the biggest US corporations. The 19 top Japanese banks are reportedly insolvent, yet the Japanese economy and financial institutions were subjected to exactly the opposite approach to those of Thailand where many financial institutions, including 56 finance companies, were closed. While Japan's bank interest rates of 0.5 percent were tolerated, a rate of 18 percent was strangling Thailand's economy and rates as high as 50 percent took their toll on Indonesian businesses. At one stage the yen was deliberately forced up against the US dollar to prevent a situation where Japanese banks would not have adequate reserves to legally trade on international markets. When the Japanese Long-Term Credit bank teetered, the government bailed it out to the tune of around US$60 billion. The potential ramifications of a Japanese collapse for the US and the whole global financial system was too big a risk to take. The Japanese Government has been stood over to increase spending and stimulate the economy. It is handing over $850 billion of taxpayers' money to bail out the private banks and financial institutions. Although some of these measures are heresy to economic rationalists they are necessary to save the global financial system and Western interests. The IMF's imposition of measures to liberalise capital flows were quite outside its charter which centres around ensuring the stability of the international monetary system and assisting members with balance of payments problems. The IMF is now working on a new clause to include in its Articles which would make the "liberalisation of capital movements" one of its purposes and obligatory for member countries. If the amendment goes ahead all 182 member countries, including Australia, would be bound by the sorts of provisions that were in the OECD's draft Multilateral Agreement on Investment. The enforced removal of barriers to capital flows would be in the hands of one of the most powerful and undemocratic institutions which serves the interests of US monopoly capital and the European and Japanese corporations. Governments would no longer have the power to determine their own policies. They would be decided by IMF personnel in consultation with the International Chamber of Commerce, the Institute of International Finance and other powerful corporate interests. Many of the measures envisaged are already being illegally enforced on countries in the grip of the IMF as part of what is known as "Second Generation Reforms". A number of proposals are now emerging that would have the IMF's work carried out more directly by the corporate sector. The Republicans in the US are arguing for the bailout role of the IMF to be handed over to the private banking sector, with the IMF (now widely discredited), playing a more general role. The Institute of International Finance has proposed the formation of a Private Sector Advisory Council to supervise the activities of the IMF while the IMF has called for steps to "strengthen private sector involvement" in crisis management, with some "power sharing arrangement". A number of governments, non-government and labour organisations have taken a stand against IMF policies. ****************************** Next week we shall look at the growing resistance to the IMF's agenda. The Guardian 65 Campbell Street, Surry Hills. 2010 Australia. Email: <[EMAIL PROTECTED]> Website: http://www.peg.apc.org/~guardian
