Page 2 of
2 Marking time until the
meltdown By Walden Bello
declared its "financial
independence" from the IMF after paying off its
debts in 2003, vowing never to return to the fund.
Indonesia has said it will pay off all its debts
to the IMF by 2008. The Philippines has refrained
from contracting new loans from the fund, while
Malaysia defied it by imposing capital controls at
the height of the crisis.
Ironically,
then, the IMF has become one of the key victims of
the 1997 debacle. This arrogant institution of
some 1,000 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
Argentina in 2002. Last year, Brazil and
Argentina, following Thailand's example, paid off
all their debts to the IMF to achieve financial
independence. Then President Hugo Chavez let the
other shoe drop by announcing that Venezuela would
leave the IMF and the World Bank. This boycott by
its biggest borrowers has translated into a budget
crisis for the IMF.
This succession of
events has left the IMF with scarcely any
influence among the big developing countries. 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
administration of US President George W Bush
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) that would have allowed
developing countries a standstill in their debt
repayments while negotiating new terms with their
creditors. Although many developing countries
regarded the proposed SDRM as weak, Washington's
veto showed that the Bush people were not going to
tolerate even the slightest controls on the
international operations of US finance
institutions.
Neo-liberalism rejected:
Thailand It is not only the IMF but
neo-liberalism, the dominant ideology of the
1990s, that came crashing down in the aftermath of
the Asian financial crisis.
Malaysia
imposed capital controls and stabilized the
economy, allowing it to weather the recession in
1998-2000 better than other afflicted countries.
It was, however, Thailand that most dramatically
broke with neo-liberalism. After three stagnant
years under governments faithfully complying with
the IMF's neo-liberal prescriptions, the newly
elected government of Thaksin Shinawatra propelled
counter-cyclical, demand-stimulating neo-Keynesian
policies to get the economy back on track. The
Thai government froze repayments on rural debt,
instituted government-financed universal health
care, and gave each village 1 million baht (about
$30,000 at current exchange rates) to spend on a
special project. Despite dire predictions from
neo-liberal economists, these measures contributed
to propelling the economy on to a moderate growth
path that has since been sustained by demand
created by China's red-hot economy.
The
1997 financial crisis, which saw a million Thais
drop below the poverty line in a few short weeks,
turned the populace against neo-liberal
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 January 8, 2006, several thousand Thais tried
to storm the building in the northern city of
Chiang Mai where negotiations for a free trade
agreement (FTA) were taking place between the US
and Thailand. The negotiations were frozen;
indeed, Thaksin's advocacy of the FTA became one
of the factors that contributed to his loss of
legitimacy and eventually his ouster from power
last September.
This souring on
globalization has been paralleled by the rise in
popularity of the economic program of the
country's revered monarch, His Majesty King
Bhumibol Adulyadej. Dubbed the "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, critics claim that the
military-supported government that overthrew
Thaksin is cleverly using the sufficiency economy
to legitimize its rule. Whatever the case,
"globalization" is an unpopular word in Thailand
today.
Neo-liberalism imposed:
Korea While Thailand broke with
neo-liberalism and the IMF, South Korea followed
almost to a "t" the neo-liberal reforms forced on
the government by the fund. It undertook radical
labor-market restructuring, trade liberalization,
and investment liberalization.
According
to sociologist Chang Kyung-sup, "Labor shedding
was the most crucial measure for rescuing South
Korean firms. Even after the breathtaking moments
were over, most of the major firms continued to
undertake organizational and technological
restructuring in an employment-minimizing manner,
and thereby got reborn as globally competitive
exporters."
Once the classic activist
developmental state, which a report by the US
Trade Representative characterized as the "most
difficult place in the world" for US enterprises
to do business in, South Korea under IMF
management has become a much more liberal economy
than Japan. Denationalization of South Korea's
financial and industrial firms has taken place
with "appalling speed", says Chang, with foreign
ownership now accounting for more than 40% of the
shares of the country's top financial and
industrial conglomerates (chaebol). Samsung
now has 47% foreign ownership, the steel company
Posco more than 50%, Hyundai Motors 42%, and LG
Electronics 35%.
The IMF has touted South
Korea as a "success story". However, Koreans hate
the fund and point to the high social costs of the
so-called success. According to South Korean
government figures, the proportion of the
population living below the "minimum livelihood
income" - a measure of the poverty rate - rose
from 3.1% in 1996 to 8.2% in 2000 to 11.6% in
early 2006. The Gini coefficient that measures
inequality jumped from 0.27 to 0.34. Social
solidarity is unraveling, with emigration, family
desertion, and divorce rising alarmingly, along
with the skyrocketing suicide rate.
"We
have one big unhappy society that looks back to
the pre-crisis period as the golden age," said
Chang.
All fall down Although
the Asian financial crisis of 1997 may have
brought about the downfall of the IMF, economist
Jayati Ghosh points out that it also marked the
demise of the East Asian developmental state. This
developmental state had aggressively 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, the economies of East Asia have been
irrevocably scarred and weakened. The crisis
marked the end of their being at the forefront of
development, as models to be emulated. The 21st
century that was supposed to be their century
slipped away. The cataclysm marked the passing of
the torch to China. In their weakened state, the
smaller East and Southeast Asian economies have
now become increasingly dependent on the dynamism
imparted by their giant neighbor.
Walden Bello is a professor of
sociology at the University of the Philippines at
Diliman, a senior analyst at the Bangkok-based
research and advocacy institute Focus on the
Global South, and a columnist for Foreign Policy
In Focus.
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