All Fall Down: Ten Years After The Asian Financial Crisis
All Fall Down: Ten Years After The Asian Financial Crisis
Ten years after the Asian financial cataclysm of 1997, the economies of the
WHAT GLOBAL FINANCIAL ARCHITECTURE?
Meantime, despite all the talk about a "new global financial architecture," there is little in place to regulate the massive movements of capital shooting through global financial networks at cyberspeed.
Leave-it-to-the-market enthusiasts tell us not to worry and confidently point out that there's been no major crisis since the Argentine bankruptcy in 2002, but people who know better, like Wall Street insider Robert Rubin, who served as Bill Clinton's Secretary of the Treasury, are very worried even as they resist regulation: "Future financial crises are almost surely inevitable and could be even more severe. The markets are getting bigger, information is moving faster, flows are larger, and trade and capital markets have continued to integrate...It's also important to point out that no one can predict in what area-real estate, emerging markets, or whatever else-the next crisis will occur." A recent study by the Brookings Institution confirms Rubin's fears: there have been over a hundred financial crises over the last thirty years.
THE REIGN OF FINANCE CAPITAL
The amounts of speculative capital sloshing around in global financial circuits are truly mind-boggling. According to McKinsey Global Institute, the global stock of "core financial assets" stood at $140 trillion in 2005. Traditional commercial banks held a significant amount of global financial assets, but non-bank financial operators, which have become important intermediaries between savers and investors, accounted for $46 trillion in 2005, hedge funds for $1.6 trillion, and private equity investors about $600 billion. These figures and other data on the stupefying rise and scale of global finance capital were presented by economist C.P. Chandrasekhar at the conference "A Decade After: Recovery and Adjustment since the East Asian Crisis" held in
The explosive growth of finance capital is seen by some analysts as stemming from the overcapacity that is plaguing the global economy. This has resulted in a marked slowdown in investment in major parts of the global economy, with notable exceptions like
Speculative activity as a mode of profit-making has also outran trade, with the daily volume of foreign exchange transactions in international markets standing at $1.9 trillion daily, compared to an annual value of $9.1 trillion of trade in goods and services -- that is, speculative activity in a single day amounted to 20 per cent of the annual value of global trade! Martin Wolf, one of the cheerleaders of globalization, captures today's power relations among the fractions of global capital when he writes: "The new financial capitalism represents the triumph of the trader in assets over the long-term producer."
Ten years after the IMF and the
Paralleling the emergence of more complex instruments has been the rise of hedge funds and private equity funds as the most dynamic players in the global casino. Hedge funds, said to be key villains in the Asian financial crisis, are even more freewheeling now. Now numbering over 9500, hedge funds take short and long positions on a variety of investments, with a view to minimizing overall risk and maximizing profits. Private equity funds target firms with the end in view of controlling them, restructuring them, then selling them for a profit.
ACCUMULATING RESERVES AS A DEFENSIVE STRATEGY
With the absence of global financial regulation to tame the whirlwind of global finance, the Asian countries have taken measures to defend themselves from the volatile global speculators that brought down their economies by pulling $100 billion in panic from the region in a few fateful weeks in July and August 1997. The ASEAN countries have banded with
Even more important, they have built up huge financial reserves by running massive trade surpluses, an objective they have achieved by keeping their currencies undervalued. Between 2001 and 2005, according to Nobel laureate Joseph Stiglitz, eight East Asian countries -- Japan, China, South Korea, Singapore, Malaysia, Thailand, Indonesia, and the Philippines -- more than doubled their total reserves, from roughly $1 trillion to $2.3 trillion.
This has resulted in a highly paradoxical situation. In a global economy marked by strong tendencies toward stagnation,
THE DEMISE OF THE IMF
The building up of massive reserves on the part of the Asian countries is directly related to their bitter experience with the International Monetary Fund. Governments recall the crisis as the result of a one-two-three punch delivered by the IMF. First, the Fund, along with the US Treasury Department, pushed them to liberalize their capital accounts, which resulted in the easy exit of foreign capital that brought down their currencies. Then, the IMF provided them with multibillion dollar loans, not to rescue their economies but to rescue foreign creditors. Then, as their economies wobbled, the Fund told them to adopt pro-cyclical expenditure-cutting policies that accelerated their plunge into deep recession.
"Never again" became the slogan of a number of the affected governments. The Thaksin government in
Ironically, then, the IMF has become one of the key victims of the 1997 debacle. This arrogant institution of some 1000 elite economists never recovered from the severe crisis of legitimacy and credibility that overtook it -- a crisis that was deepened by the bankruptcy of its star pupil
What is, in effect, a boycott by its biggest borrowers is translating into a budget crisis for the IMF. Over the last two decades, the IMF's operations have been largely funded from the loan repayments of its developing country clients rather than from the contributions of wealthy Northern governments. But with the biggest borrowers refusing to borrow, debt repayments are being to be reduced to a trickle. The upshot of these developments is that payments of charges and interests, according to Fund projections, would be cut by more than half, from $3.19 billion in 2005 to $1.39 billion in 2006 and again by half, to $635 million in 2009. These reductions have created what Ngaire Woods, an
This succession of events has left the IMF with scarcely any influence among the big developing countries and groping for a new role. But the unraveling of the authority and power of the IMF is due not only to the resistance to further Fund intervention by developing countries. The Bush administration itself contributed to eroding the Fund's search for a meaningful role in global finance when it vetoed a move by the conservative American deputy director of the Fund, Ann Krueger, to create an IMF-supervised "Sovereign Debt Restructuring Mechanism" (SDRM) which would have allowed developing countries a standstill in their debt repayments while negotiating new terms with their creditors. Many developing countries regarded the proposed SDRM weak, and what
It is not only the IMF but neoliberalism, the dominant ideology of the nineties, that came crashing down in the aftermath of the crisis.
The 1997 financial crisis, which saw one million Thais drop below the poverty line in a few short weeks, turned Thais against neoliberal globalization. Even as the government refocused on stimulating domestic demand through income-support for the lower classes in the countryside and the city, popular sentiment went against free trade. On Jan 8, 2006, several thousand Thais tried to storm the building in Chiang Mai, Thailand, where negotiations for an FTA (free trade agreement) were taking place between the US and Thailand. The negotiations were frozen; indeed, Prime Minister Thaksin's advocacy of the FTA became one of the factors that contributed to his loss of legitimacy and eventually his ouster from power in September 2006.
The souring on globalization has been paralleled by the rise in popularity of an economic paradigm promoted by the country's popular monarch, King Bhumibol. Dubbed "sufficiency economy," it is an inward-looking strategy that stresses self-reliance at the grassroots and the creation of stronger ties among domestic economic networks. Taking advantage of the King's popularity, the military-supported government that overthrew Thaksin is said by critics to be invoking the sufficiency economy to legitimize its rule. Whatever the case, globalization is an unpopular word in
Regarded as the classic activist developmental state that a report of the US Trade Representative once characterized as the "most difficult place in the world" for US enterprises to do business in,
The IMF has touted
ALL FALL DOWN
In retrospect, the Asian financial crisis of 1997 may have brought about the downfall of the IMF, but, as economist Jayati Ghosh pointed out at the Bangkok meeting, it also marked the demise of the East Asian developmental state that had aggressively and carefully managed the integration of the national economy into the world economy so that it would be strengthened, not marginalized by global economic forces. Despite their different pathways from the crisis since 1997, all the economies of
Walden Bello is professor of sociology at the University of the