Asian crisis: powers seek to cobble together a remedy
By Eva Cheng
In mid-January, when Asia's economic crisis took a new turn for the worse, Washington sent an urgent call to invite key imperialist countries to meet in February on restructuring the world financial system. A week later, Bonn floated the idea of Asia's "leading" countries establishing a formal structure, like the Group of Seven on a world scale, as a means to tackle problems in the region's financial order.
Immediately after Indonesia's January 6 budget, which threatened to derail the IMF-led rescue loan package, US President Bill Clinton made a highly publicised call to President Suharto, "advising" him not to reject the IMF requirements.
IMF officials and leaders of at least Japan, Germany, Britain, Australia and Singapore also phoned Suharto to increase the pressure. Top IMF and US officials were then queuing to see Suharto over the next few days, followed by the visit of a high-level German banking task force. German finance minister Theo Waigel will follow it up this month by a visit to all the troubled Asian economies.
This concern over Asia's economic crisis comes after months of denying that there was a serious problem. Three months after problems first blew up in Thailand and when the rupiah was already sliding, the World Bank was adamant that Indonesia was too strong to be in need of IMF help, while the IMF assured everyone that South Korea's fundamentals were fine.
Very shortly thereafter, Indonesia called in the IMF, and, weeks later, South Korea as well. Even on the eve of South Korea's call in late November, Clinton dismissed the Asian economic problems as "a few little glitches".
Their sentiments changed radically once the extent of South Korea's troubles became known. It was soon acknowledged that many banks from imperialist countries were heavily exposed in the region and were threatened by major loan defaults.
Fears for Japan
Of the US$69.4 billion outstanding foreign bank loans to Thailand as of last June, 82% came from five imperialist countries — Japan, Germany, France, Britain and the US. Of South Korea's US$103.4 billion at the same period, the same five accounted for 59%.
These figures do not include debts of corporations and banks' exposure to "off-balance sheet items".
Japanese capital's influence is particularly important in Asia. Outstanding Japanese bank loans to Asia amounted to US$276 billion, or 32% of all foreign bank lending in the region. They often hold the biggest share in individual markets — 54% in Thailand, 39% in Indonesia and 23% in South Korea.
Their own problems tend to be extraordinarily big as well. Japanese banks have bad loans — including those in Japan — amounting to a whopping 77 trillion yen (US$600 billion), according to an official announcement last month.
This amount is much larger than any that Tokyo had previously reported since the Japanese economy ran into trouble in 1990. Major new collapses, especially that of Hokkaido Takushoku Bank in November, have increased the problem.
Reflecting the concern of the world ruling class, the Economist said in its January 24 editorial: "The banking crisis in Japan, far more than the economic collapses in South Korea and South-East Asia, represents a serious threat to the world. It is badly retarding Japan's own growth. It hinders Japan's ability to buy the exports that other Asian countries must pump out to recover from their own crisis. And because no important financial institution elsewhere can avoid dealing with banks the size of those in Japan, Japan's weak banks inevitably put the stability of the world financial system at risk."
Such concerns are well founded, but similar bad loans were until recently welcomed by other imperialist banks because they strengthened the latter's competitive positions. European banks, for example, were able to increase their portfolio in Asia to US$360 billion, exceeding Japan's. Their increased activities were partly a reflection of European capitalists' growing reliance on Asia as a source of profits.
Exports
Though the European Union's trade with Asia is still small, accounting for 2.2% of its GDP and 9% of its exports, it could still be affected by Asia's troubles if its major banks suffered serious losses. German foreign minister Klaus Kinkel warned in late January that Europe "could be caught up in the whirlpool of Asia's financial misery".
Sales are crucial. While capitalists as a whole find it increasingly hard to increase the overall market, individual capitalists try to increase their own share at the expense of other capitalists, especially through exports. Often, they are helped by their governments, funded by the public purse, especially at times of trouble.
Exports even to viable customers can present a problem if the market is in distress. Banks won't handle the transaction for the exporters, for example, if they don't see reasonable prospects that the importer's banker can carry the deal through. This is a major problem for exporters to the troubled Asian economies.
To help its own capitalists in Asia, the US Department of Agriculture recently doubled its credit guarantee program to US food exporters, to US$2 billion.
The Australian cabinet approved a similar A$300 million backing on January 20 for Australian exporters to Korea: when payments go wrong, Australian taxpayers will foot the bill. Australian exporters to Indonesia are demanding that Canberra provide them with a similar deal.
Such handouts can go much further, but may favour only a section of capitalists. Tokyo, for example, is planning to spend 30 trillion yen to rescue its "money-centre" banks. Non-financial capitalists and the small banks are excluded.
On January 29, armed with "rescue" loans supplied by IMF and other imperialist governments which the South Korean people will have to repay, the South Korean government reached a deal with 13 imperialist banks to take over A$35.3 billion worth of bad loans that they had previously extended to South Korean banks. The government is now the debtor for that amount to these 13 banks, for which it pays an interest rate 2.25-2.75% higher than the interbank rate!
Pressure on IMF
Competition between them often inhibits the capitalists from acting effectively for their class interests. But they still do cooperate.
The IMF and the World Bank are among their prime tools. However, these institutions primarily represent the interests of the key imperialist countries, rather than the collective interests of all members, because of the unequal votes granted to members. Based on a dollar-a-vote system, the US holds 18% of the votes in the IMF, while Japan, France, Germany and Britain share 21%. The remaining votes are very scattered.
The imperialist countries rely on the Third World as a crucial outlet for their capital, especially in the form of loans, and their products and technologies. Due to unfavourable trade terms and structural imbalances (a legacy of their colonial past), most Third World countries suffer from trade and external payments deficits.
This problem has become more serious since the early '70s when the world payment system based on US dollars as a proxy for gold broke down. Major shifts in exchange rates resulted, driven by speculation and the conflicting needs within the imperialist camp.
These fundamental problems cannot be eradicated in the absence of a major overhaul of the world economic order. But the IMF's mission, with increased assistance from the World Bank in recent years, is to "quick fix" such imbalances when the problem gets out of hand — with emergency loans, often on condition of adherence to an austerity program.
The IMF has been containing and pushing back such problems since it was established after the second world war, but has found it increasingly hard to do its job.
Unable to meet the harsh austerity requirements, many countries abandoned their IMF programs half way — staggering along until the next problems broke out.
Two months after its "rescue", Indonesia has already renegotiated a new deal with the IMF. Thailand is also seeking to scale down some of the austerity requirements. South Korea's problem could explode again if the imperialist banks fail to restructure more loans with Korean banks.
In all three countries, working people have been mobilised into action against the serious and increasing cuts to their standard of living. The most organised response so far is from South Korea, where the trade union movement is threatening to call a general strike.
In the aftermath of the Latin American debt crisis in the early '80s, the key imperialist countries tried to prevent further crises by introducing stricter capital and other requirements on their banks. That didn't stop the 1994 Mexican crisis, but they continued to draw up more requirements.
Later this month, they will try to patch things up again. But nothing other than bandaid solutions can emerge without addressing the structural dependency of the Third World on the imperialist centres, the unequal terms of trade and a world payment system crippled by the conflicting interests between capitalists of different countries.