Focus on Trade #23, part 8 of 8 (fwd)

[Robert Weissman <rob@essential.org>]

FOCUS-ON-TRADE #23, MARCH 1998
SPECIAL ISSUE ON THE IMF

Part 8 of 8

A regular bulletin produced by Focus on the Global South, Bangkok,
Thailand

Focus-on-Trade is a regular electronic bulletin providing updates and
analysis on regional and global trade and finance.  Although initially
concerned with APEC, the scope of the bulletin now extends to include
the World Trade Organisation (WTO), the International Monetary Fund
(IMF), the ASEAN Free Trade Area (AFTA), the Multilateral Agreement on
Investment (MAI) and any other acronyms that require critical
attention. Focus-on-Trade contains updates on trends in world trade,
with an emphasis on analysis of these trends from an integrative,
interdisciplinary viewpoint that is sensitive not only to economic
issues, but also to ecological, political, gender and social issues.
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IN THIS ISSUES

Taming the Tigers: The IMF and the Asian Crisis

by Nicola Bullard, with Walden Bello and Kamal Malhotra

This paper is published jointly by Focus on the Global South in
Bangkok and CAFOD in London for the Asia Europe Meeting (ASEM)being
held in London on 2 and 3 April 1998. The paper will be officially
released on 2 April in London by the two organisations. If you would
like a hard copy, please contact Focus on the Global South at
admin@focusweb.org or CAFOD at dgreen@cafod.org.uk.


The paper is in EIGHT parts:

Part 1: Executive Summary, Introduction and WHOLE DOCUMENT AS 
ATTACHMENT

Part 2: The IMF and Thailand
Part 3: The IMF and Indonesia
Part 4: The IMF and South Korea
Part 5. The social impact of the crisis
Part 6. The social impact of the crisis/The role of the IMF
Part 7: The role of the IMF
Part 8: Conclusions and recommendations, footnotes

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PART 8
CONCLUSIONS AND RECOMMENDATIONS

Thailand, Indonesia and South Korea have all been dubbed ‘Asian 
tigers’ on the basis of their impressively high growth rates over the 
past ten or more years. Although each has adopted an economic 
development strategy based on export-oriented industrialisation, 
there are significant differences in other aspects of their economic 
policies, including the role of the state, industrial policy, the 
degree and nature of  trade and financial liberalisation and the 
openness of their markets. One thing that they do have in common, 
though, is that the private sector has become increasingly dependent 
on foreign finance, an addiction made possible by rapid 
liberalisation and the inexorable expansion of global financial 
flows. 

In many ways the Asian crisis is not an ‘Asian’ crisis at all, 
but a global crisis which has shown the inadequacies of markets, 
governments and international institutions in coping with rapid 
financial liberalisation. In particular, the high levels of now 
unserviceable private sector debt show that the capital market is 
incapable of efficiently allocating resources, that national 
governments have not developed the necessary levels of transparency, 
institutional strength and regulation to keep pace with the rapidly 
changing external environment, and that rapid liberalisation is 
incompatible with sustainable and equitable development.

Nor is the Asian crisis simply a financial crisis. It is above all a 
human crisis. Already millions of people have been thrown out of 
work, and poverty and hunger are on the increase, as decades of 
social progress have been thrown into reverse. Worse is to come for 
the rest of 1998, and perhaps beyond. In Indonesia, the long term 
viability of the nation is at stake as the Suharto regime clings 
grimly to power while the economy collapses and food riots and 
protests spread.

The crisis has tested the effectiveness and relevance of the 
International Monetary Fund, finding it wanting on both counts. In 
practice, the IMF-prescribed policies accelerated economic 
contraction, did not stabilise currencies, and did not restore market 
confidence.

Further, the public sector austerity measures demanded by 
the Fund were the wrong response to what was fundamentally a private 
sector crisis. In effect, the Fund socialised private sector debt and 
compounded the already devastating impact of the crisis on workers 
and the poor. 

The pain of adjustment has not been fairly distributed. 
It has hit the poor hardest through job losses and price rises. It 
has also hit the local companies who borrowed during the spending 
spree, rather than the foreign banks and financial institutions who 
also profited from the speculative investment which precipitated the 
crisis. This raises the issue of moral hazard -- bailing out 
investors in this way makes it more likely that they will re-offend 
in the future. 

The IMF-imposed conditions have gone far beyond its mandate by 
demanding structural and policy reforms unrelated to either its role, 
as laid out in the Articles of Agreement, or to the causes of the 
economic crisis. In particular, the Fund has become a major proponent 
of capital account liberalisation, and the G7 governments are 
currently seeking the change the Articles to make this a central part 
of its mandate. Indeed, they see this move as part of their response 
to the Asian crisis. Given that over-hasty financial deregulation was 
one of the main causes of the crisis, putting the Fund in charge of 
speeding up the process is rash, to say the least. When the train is 
leaving the rails, the answer is not to speed up.

Both the Fund's performance and statements by senior US 
government officials demonstrate that the IMF can reasonably be 
criticised as promoting the interests of its major shareholders -- 
over and above the interests of the countries in trouble. 

Criticising the solutions imposed by the IMF in no way implies an 
uncritical endorsement of  'Asian' capitalism. Economic development 
models in these countries have brought some overall improvements in 
health, education and living standards. But the cost has been high in 
terms of sharpening the divide between rich and poor, environmental 
exploitation and loss of community control over natural resources, 
and growth without economic democracy or expansion of political 
participation.

In this sense, the crisis is a moment of opportunity to re-assess the 
economic and political directions taken and to re-invent a 
development model based on economic democracy, political 
participation and environmental sustainablity. Certainly, this is 
what the peoples' organisations in Thailand, Indonesia and South 
Korea are demanding. Sadly, the impetus is in the opposite direction, 
and it seems likely that the pressure to 'export out of debt'  will 
simply deepen the inequities of the existing model. 

There is growing agreement, even from within, on the need critically 
to evaluate and if necessary overhaul the Bretton Woods institutions.
 
A crucial role should be played by the governments of the European 
Union, which together make up the largest voting bloc on the IMF 
board. These governments should ensure that their voting and lobbying 
records at the Fund are fully coherent with their stated policy goals 
of furthering sustainable social and economic development around the 
globe. So far the European governments have stayed on the sidelines, 
only emerging as a chorus line to support Washington in urging the 
Asian governments to comply with the demands of the IMF.

World Bank senior economist Joseph Stiglitz has called for a 
‘post-Washington consensus’ which "cannot be based on Washington."  
"One principle of the emerging consensus," he says, "is a greater 
degree of humility, the frank acknowledgment that we do not have all 
the answers."

Humility notwithstanding, at least two key issues need urgent 
attention: reviewing the role, policies, accountability and 
suitability of the IMF as presently constituted and establishing a 
global mechanism for the governance of international financial 
transactions. On the International Monetary Fund:

There should be an immediate and thorough review of the Bretton Woods
institutions to assess their relevance to present global economic conditions
with the possibility of either replacing the IMF and World Bank or rewriting
their constitutions.

In the meantime, some immediate measures must be taken, including:
strictly limiting the role of the International Monetary Fund to preventing
a breakdown in trade caused by exchange rate volatility or balance of
payments difficulties 
*       opposing any changes to the IMF’s Articles of Agreement, such as
extending their remit to include capital account liberalisation, pending a
full review of the Fund’s role and performance
*       clearly separating the short-term ‘clearing’ or stabilisation
mission of the IMF from the long-term development mission of other
institutions, such as the World Bank or Regional Development Banks
*       eliminating cross-conditionalities between the IMF and the World Bank
de-linking all trade, investment,democratisation and good governance
conditions from IMF funding
*       restructuring the IMF to increase transparency, accountability and
equality between members, regardless of their level of contribution to the Fund
ensuring the neutrality and impartiality of the advice given by the IMF so
that it cannot be used to "police national economic policies and force them
into a convergence toward the reigning consensus." 
*       in particular, the EU and Asian governments should play a more
proactive role at the fund, using their vote on the Board to press for the
reforms outlined above
*       unless and until the IMF can be reformed along these lines, regional
initiatives such as the Asian Monetary Fund should be encouraged, in order
to mobilise additional sources of capital and offer alternatives to the
IMF's narrow policy prescriptions.

On financial flows: 
Mechanisms to monitor, regulate and if necessary control, international
financial flows, especially of speculative short-term capital, are urgently
needed to prevent further crises

On debt:
A system should be established for the effective resolution of private
sector debt crises, based on clear rules and bankruptcy procedures. These
should govern international debtor-creditor relations, providing an
alternative to the state assuming full responsibility for unrecoverable
private sector debts. 


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Footnotes:

 Quoted in Robert Chote, "Thai Crisis Highlights Lessons of Mexico," Survey,
Financial Times, 19 September 1997, p. 16.
 Quoted in Jayati Ghosh, Abhijit Sen, and C.P. Chandrasekhar, "Southeast
Asian Economies: Miracle or Meltdown?," Economic and Political Weekly, Oct.
12-19, 1996, p. 2779.
 See Pakorn Vichyanond, Thailand's Financial System: Structure and
Liberalization (Bangkok: Thailand Development Research Institute, 1994), p. 3.
 Jeffrey Sachs, "The IMF and the Asian Flu," The American Prospect,
March-April 1998, p. 17.
 IMF, "IMF Approves Stand-by Credit for Thailand," Press Release No. 97/37,
August 20, 1997.
 Ibid..
 Ibid..
 "Finance Firms in Thailand Express Regret," Asian Wall Street Journal, 5-6
December, 1997.
 "The Economy in 1996 and Trends in 1997," Annual Report 1996 (Bangkok:
Bangkok Bank, 1997), p. 42.
 Sachs, quoted in Vatchara Charoonsantikul and Thanong Khantong, "Is the IMF
Mistreating its Thai Patient?," Nation, 11 November 1997.
 Sachs, "The IMF and the Asian Flu..."
 IMF, "IMF Approves Stand-By Credits for Thailand..."
 "IMF Package No Free Lunch for Thailand," Nation, 9 August, 1997.
 Soonyuth Nunyamanee and Chiratas Nivatpumin, "The Year They Sank the Baht,"
Bangkok Post Economic Review Yearend 1997, p. 19.
 Vatchara Charoonsantikul and Thanong Kanthong, "Is the IMF Doctor..."
 Ibid..
 Bob Davis, "Thailand Tests IMF's Resolve on Reform," Asian Wall Street
Journal, 8 December 1997.
 "IMF Agrees to Relax Conditions," Bangkok Post, 13 February 1998.
 Quoted in "Discipline Must be Maintained Despite Breathing Space:
Supachai," Bangkok Post, 14 February 1998.
  World Bank, World Bank Country Brief, September 1997 (downloaded from
World Bank website)
  Ibid.
  Congressional Research Service Report for Congress, Number 97-1021 E, "The
1997 Asian Financial Crisis,"  25 November 1997
  Although the widely publicised figure is $43 billion, the figures
available add up to $41 billion. The source of the other $2 billion is not
clear.
  Ibid.
  International Monetary Fund Press release No. 97/50 "IMF Approves Stand-By
Credit for Indonesia," 5 November 1997.
  International Monetary Fund Press release No. 97/50 "IMF Approves Stand-By
Credit for Indonesia," 5 November 1997
  David E. Sanger, "IMF Now Admits Tactics in Indonesia Deepened the
Crisis," New York Times, 14 January 1998.
  "Suharto’s Family has Prospered, but Indonesians Suffer,"  Johan Blank,
Inter Press Service, 24 January 1998
  "And Now the Political Fall Out", The Economist, 17-23 January, 1998
  Ibid.
  "Indonesia – Memorandum of Economic and Financial Policies," Jakarta Post
17 January 1998
  Ibid.
  The Reforestation Fund, which reportedly runs to billions of dollars drawn
from timber taxes, was intended to replant and protect Indonesia’s tropical
forests. However, it was revealed that the funds were not able to be used to
fight last year’s forest fires because they had been earmarked for the
national car project, see  "Renewed Indonesia Fires Worry Southeast Asia",
Michael Richardson, International Herald Tribune, 13 February 1998
  Japan Economic Report, Number 4B, 30 January 1998
  TAPOL Bulletin Number 145, February 1998
  "Suharto Says New Path Needs IMF’s Blessing", Asian Wall Street Journal, 2
March 1998
  "World Bank Brings Aid for Jobs, Gets Flak Instead ," Kafil Yamin, Inter
Press Service, 5 February 1998
  "Currency Board Rumours Elevate Asian Currencies," Asian Wall Street
Journal, 11 March 1998
  "South Korea Leaves Developing World", Thalida Deen, Inter Press Service,
30 September 1997
  Vinod Ahuja, Benu Bidani, Fransisco Ferreira & Michael Walton, Everyone’s
Miracle? Revisiting Poverty and Inequality in East Asia, (Washington: World
Bank, 1997)
  "South Korea Leaves Developing World…"

  For more details of the Korean economic crisis, see Walden Bello’s "Korea:
Travails of the Classic Tiger Economy" and Ha Joon Chang’s  "Korea: The
Misunderstood Crisis."

  Yilmaz Akyüz, "The East Asian Financial Crisis: Back to the Future,"
UNCTAD, Geneva 1998 (downloaded from UNCTAD website)
  Ibid.
  Chossudovsky, Michel. The IMF Korea Bailout. 1 January 1998 (by email)
Department of Economics, University of Ottawa. 
  Ibid.
  Interview, anonymity requested, 15 February 1998
  "Bruising Battle at Korea IMF Talks," John Burton, Financial Times, 3
December 1997
  Although this sounds like a Red Cross parcel, it is in fact an
interest-bearing loan with strict conditions attached. No country has ever
defaulted on an IMF loan.
  "IMF, Japan to Aid South Korea in Record Bailout," Japan Economic
Institute Report Number 46B, 12 December 1997
  It has been suggested that one of the reasons Japan backed down so easily
on their proposal for an Asian Monetary fund is because they realised they
could soon need the cash at home to bolster their own economy.
  "The 1997 Asian Financial Crisis," Congressional Research Service Report
Number 97-1021 E, November 1997, Library of Congress, Washington DC.
  IMF Stand-by Agreement Summary of the Economic Program, 5 December 1997
(downloaded from IMF website).
  Ibid. 
  "Seoul gets Christmas Day Surprise of $10 billion Loans," The Nation, 26
December 1997
  "IMF is a Power Unto Itself" Jeffrey Sachs, Financial Times, 11 December 1997.
  Op. cit.
  Ibid.
  "Painful Prospect", John Burton, Financial Times, 8 December 1997
  "Koreans Ask ‘Who’s to Blame?’", The Nation, 6 December 1997
  "Anger at IMF Terms May Boost Korean Opposition," John Burton, Financial
Times, 11 December 1997

  "Thailand Country Brief," World Bank, September 1997 (downloaded from
World Bank website)
  "2.9 Million Thais Risk Losing Their Jobs by December," Bangkok Post, 1
September 1997
  "Most of 58 Firms Will Not Survive, Bangkok Post, 7 December 1997
  "Crisis Promises More Pain for Workers,"  Prangtip Daorueng, Inter Press
Service, 26 December 1997
  Interview with Jaran Ditapichai, 13 March 1998
  Figure from Wanida Tantiwitthayaphitak, spokesperson for Forum of the
Poor, Bangkok, 21 January 1998.
  Interview with Dr. Angkarb Korsieporn, Bangkok, 12 January 1998.
  Interview with Dr. Angkarb Korsieporn, Bangkok, 20 February 1998.
  World Bank, "Social Aspects of the Crisis: Perceptions of Poor
Communities," Draft report, February 1998.
  "2..9 Million Thais Risk Losing Jobs by December," Bangkok Post, 1
September 1997
 Interview, Professor Nikhom Chandravithun, Bangkok, 20 February 1998.
  "Farmers Come to the Rescue," Satya Sivaraman,  Inter Press Service, 17
December 1997
  ibid
  Foundation for Children’s Development, "Voices of the Disadvantaged Amidst
the Economic Crisis," Number 1: Data on the Situation of Children and the
Family, February 1998 (in Thai)
  Ibid.
  Economic and Social Commission for Asia and the Pacific, "Economic
Liberalisation and Rural Poverty: a study of the effects of price
liberalisation and market reforms in Asian developing countries", United
Nations, New York, 1996., p. 170.

  Information provided by Duncan Green, CAFOD, based on material gathered
during a visit to Indonesia in early February, 1998
  Estimate by the Secretary General of the Indonesian Muslim Intellectuals
Association reported in the Indonesian Observer, 27 January 1998
  Duncan Green, op.cit.
  Taken from World Bank website, 3 March 1998
  Siddho Deva, Oxfam, personal communication, 13 March 1998
  Duncan Green, op. cit.
  Japan Economic Institute Report, Number 4B, 30 January 1998
  Human Rights Watch Asia Division, "Economic Crisis Leads to Scapegoating
Ethnic Chinese," 24 February 1998
  Duncan Green, op.cit.
  I am grateful for Nurina Widagdo who provided much of the information on
the social impact of the crisis in Indonesia
  "Health Crisis Feared in Indonesia", Associated Press, 8 March 1998
  "Medicine, Food Become Luxuries in Crisis," Kafil Yamin, Inter Press
Service, 23 February 1998
   Ending the plywood cartels was one of the IMF’s objectives. It would be
unfortunate if IMF conditions led directly to unsustainable resource
exploitation. 
  Taken from World Bank website, 13 March 1998
   "World Bank Brings Aid for Jobs, Gets Flak Instead,"  Kafil Yamin, Inter
Press Service, 5 February 1998
  "WB, ADB delay aid to Indonesia, Japan goes ahead", Jakarta Post, 11 March
1998
  Duncan Green, op. cit.
  "Women Go First as Firms Shed Jobs," Ahn Mi Youg, Inter Press Service, 3
February 1998
  "Unbridled freedom to sack workers is no freedom at all’, Korean
Confederation of Trade Unions Report of KCTU-IMF Dialogue, 13 January 1998.
Downloaded http://kctu.org.news8.htm
  "IMF Bailout and Employment Crisis: the Labour Response," Korean
Confederation of Trade Unions, 11 December 1997
  "The Wrong Medicine for Asia," Jeffrey D. Sachs,  New York Times, 3
November 1997
   C.P. Chandrasekhar and Jayati Ghosh, "Hubris, Hysteria and Hope: the
Political Economy of Crisis and Response in East Asia," (forthcoming) 
  "Bank Admits HIPC Conditions Wrong," Joseph Hanlon, Debt Update, March 1998
  Roberto Mangabeira Unger, "The Really New Bretton Woods," in The Financial
System Under Stress: An Architecture for the New World Economy, edited by
Marc Uzan (New York & London: Routledge, 1996). This article is an extremely
interesting and constructive analysis of how the Bretton Woods Institutions
should be reformed, animated by the impulse that "the world economy needs
more, not less, of all the benefits Bretton Woods was designed to provide
through international coordination and supranational institutions." (page 23)
  Martin Feldstein, "Refocusing the IMF," Foreign Affairs, March/April 1998 
  Ibid.
  IMF Articles of Agreement, Article 1, Purposes (downloaded from IMF website)

  "The Wrong Medicine for Asia…"
  "Bank Admits HIPC Conditions Wrong…
  Late in 1997 Congress failed to renew the President’s "fast-track"  trade
negotiating authority responding to an all-out public campaign opposing
further liberalisation. 
  Testimony of Ambassador Charlene Barshefsky United States Trade
Representative before the House Ways & Means Trade Subcommittee, 24 February
1998 (downloaded from USTR website)
  Ibid.
  Stanley Fischer, "The Asian Crisis: A View form the IMF." Address to the
Midwinter Conference of the Bankers’ Association of Foreign Trade,
Washington DC, 22 January 1998
  "The Asian Monetary Fund Proposal: A Case Study of Japanese Regional
Leadership," Eric Altbach, Japan Economic Institute Report, Number 47A, 19
December 1997
  "Dollars and Sense,"  Far Eastern Economic Review, 12 February 1998, p. 14
  Maastricht Treaty, Title XVII, Article 130u
  "Eliminating World Poverty: A Challenge for the 21st Century", White
Paper, November 1997
  "UK Initiative to Help Asia", HM Treasury Press Release, 17 February 1998
  "Statement by the G7 Finance Ministers and Central Bank Governors",
February 1998
  Joint UK aid agency letter to Gordon Brown, 19 February 1998
  "Austerity Drive Begins to Rekindle Confidence," Bangkok Post, 6 March 1998
 Quoted in "SET May be the bet in the World, but Reform Still Needed,"
Bangkok Post, 21 February 1998
  "Austerity Drive Begins to Rekindle…"
 Ibid.
  "IMF Now Admits Tactics in Indonesia Deepened the Crisis," David E.
Sanger, New York Times, 14 January 1998.
  Andrew MacIntyre, (ed.), Business and Government in Industrialising Asia,
(Sydney: Allen and Unwin, 1994). p. 263
  "Habibie Gets Set to be Named Vice-President," Asian Wall Street Journal,
11 March 1998
  "Suharto's New Mandate Does Little to Ease Uncertainty,"  Kafil Yamin,
Inter Press Service, 10 March 1998
  Ibid
  Ibid
  Duncan Green, "The Indonesian Economic Crisis", CAFOD, March 1998
  "Currency Board Rumours Elevate Asian Currencies," Asian Wall Street
Journal, 11 March 1998
  Ibid
  Testimony of Ambassador Charlene Barshefsky United States Trade
Representative to the House Ways & Means trade Subcommittee, 24 February
1998 (downloaded from USTR website)
  Ibid. 
  Anonymity requested, interview, 15 February 1998
  "Seoul Gets Christmas Day Surprise of $10 Billion Loans," The Nation, 26
December 1997
  Anonymity requested, interview,  16 February 1998
  Ha-Joon Chang, "Korea: the Misunderstood Crisis,"  February 1998
  "Korea Wins Agreement for Major Debt Rollover," Asian Wall Street Journal,
16 March 1998
  "Bank Admits HIPC Conditions Wrong,"  Joseph Hanlon, Debt Update, March 1998
   Roberto Mangabeira Unger, "The Really New Bretton Woods," in The
Financial System Under Stress: An Architecture for the New World Economy,
edited by Marc Uzan (New York & London: Routledge, 1996).
  Ibid. p.23 
  Yilmaz Akyüz, "The East Asian Financial Crisis: Back to the Future?"
(Downloaded from UNCTAD website). This is an excellent and readable article,
with a provocative analysis and positive suggestions for reform.

END PART 8 OF 8



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Walden Bello                W.Bello@focusweb.org
Kamal Malhotra              K.Malhotra@focusweb.org
Chanida Chanyapate Bamford  C.Bamford@focusweb.org
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Nicola Bullard              N.Bullard@focusweb.org
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