----- Original Message ----- From: John Hermann <[EMAIL PROTECTED]> To: John Hermann <[EMAIL PROTECTED]> Sent: Tuesday, 21 September 1999 12:03 PM Subject: Further Strip-tease in the White House? Economic Reform Australia ERA EMAIL NETWORK Date: Mon, 20 Sep 1999 Organization: Committee on Monetary and Economic Reform ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Further Strip-tease in the White House? by William Krehm Chairman, COMER Editor-Publisher, Economic Reform mailto:[EMAIL PROTECTED] ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ It is inevitable in the scheme of human affairs to commit errors, large and small. But more important than the magnitude of the error, is its openness to correction. Where we can learn from our mistakes, all is not lost. It is when the error is backed by a powerful vested interest that matters become really grim: the very extent of a policy failure becomes closes the ranks of the imperial guard in its defence. Out of East Asia, the customary source of light, comes a sermon on this theme. Over two years ago the East Asian Tigers -- long held as paragons of the free market -- suffered a massive meltdown as one currency after the other plunged, firms went bankrupt, and the financial and industrial firms that were the very ikons of the deregulated market were suddenly dunked in disaster. It required no great analysis to sense that more lay beneath these disturbing developments than corruption and the creative accountancy that the media highlighted. There was something clearly amiss with the emergency advice that Western economists and statesmen were ladling out. For years Washington had preached the lifting of all restraints on the free flow of capital and on the resulting lurchings of interest rates and currencies that this necessarily would bring about. Yet now Washington and the international organisations were suddenly whistling quite another tune in the deep dark. It pleaded with all countries of the region, and above all China, to defend their currencies to the bitter end. There were also appeals to the South Korean government to extend its guarantee to the debt of the chaebols, the industrial conglomerates. Once this happened, the chaebols' debt that international banks held in massive quantity would come under the provision of the Bank for International Settlements' Risk-Based Capital requirements that declared debt guaranteed by governments of OECD countries risk-free. Something was amiss here on several counts. If the free market were all-wise and the state the wasteful villain, how could the BIS** -- the private central bankers' club that doesn't allow anybody connected with a government to attend its sessions -- recommend such guidelines in the first place? And having done so, how could the governments that imposed the failed policies end up twisting the arm of a distressed OECD country to bend the rules to bail out the international banks at the expense of the South Korean tax-payers? But the most damning truth about the mess surfaced when the Malaysian Prime Minister Mahathir Mohamad uttered the unutterable -- that the Emperor himself, mighty Washington, had at no time, while handing out such imperious bad advice, worn any clothes. What had passed for wise policy was in fact a self-interested scam at the expense of the less developed countries. That in other respects -- civil liberties, accountancy -- Mahathir's regime leaves a few things to be desired, is irrelevant. He gave voice to a burning resentment that extended throughout much of the world. And what is more, his government proceeded to introduce controls on capital movements, the greatest No-No in Washington's hymnal. And on the first anniversary of that "experiment" Douglas Appell wrote in The Wall Street Journal (1/9/99), "a recovering Malaysia has confounded the critics who saw economic ruin in its unorthodox policy. And it may continue to do so if controls becomes a theme in the country's unfolding economic story, as some observers predict. 'If there were another crisis further down the road, the hurdle is lower for Malaysia to impose capital controls again,' says Raymond Lim, an economist with ABN Amro Securities in Singapore. Officials won't rule out that possibility. 'Nothing is carved in stone,' says Zainal Aznam Yusof, an economic adviser on the government's National Economic Action Council. The government must be ready to act again if a financial meltdown threatens to inflict heavy costs on the Malaysian people,' he says. Even the controversial 12-month lock-in period between September and February was 'realistic' in light of the 'terrible uncertainties' facing the country, Dr. Zainal says." "Government officials say they are in ho hurry to lift the peg of 3.8 ringgit to the dollar announced last September, or the capital-gains tax on short-term portfolio flows imposed from February. Some fine-tuning is possible, but those controls may be in place for the next two or three years, said Dr. Zainal." Reducing capital-gains taxes is one of the key prescriptions of Wall St. for keeping the stock markets climbing. Apostasy could hardly come in more extreme form. "Barring unexpected action by industrial nations to Malaysia's call for a global 'financial architecture' that would safeguard the interests of developing countries, some observers say Malaysia's controls should be institutionalised. At a recent conference in Kuala Lumpur, Paul Krugman, the MIT professor who last year endorsed capital controls as a short-term policy option, said Malaysia's recovery is strong enough to let the government declare victory and remove controls, but the country should keep them in reserve if needed." "The recent report of 4.1% annualised growth in the April-June quarter was proof of the economy's revival. And to those who point out that more-orthodox neighbours such as South Korea and Thailand are growing faster, officials counter that Malaysia suffered less social trauma and avoided the dictates of the International Monetary Fund." William Krehm ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ** BIS = Bank for International Settlements Copyright (C) 1999 COMER. May be reproduced with proper acknowledgement. COMER Publications Suite 107 245 Carlaw Avenue Toronto ON M4M 2S6 Telephone (416) 466-2642 Fax 466-5827 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ***************************** * G'day from John Hermann * * Highbury, South Australia * ***************************** ---------------------------------------------------------------- This is the Neither public email list, open for the public and general discussion. To unsubscribe click here Mailto:[EMAIL PROTECTED]?Subject=unsubscribe To subscribe click here Mailto:[EMAIL PROTECTED]?Subject=subscribe For information on [EMAIL PROTECTED] http://www.neither.org/lists/public-list.htm For archives http://www.mail-archive.com/[email protected]
