First published in FRFI 141, February / March 1998
The smugness of international bankers and US government officials that they have contained the southeast Asian economic crisis should deceive no one. While the world’s major stockmarkets may, for the time being, have recovered from the dramatic falls of last autumn, the southeast Asian crisis is gnawing away at the foundations of the international capitalist system.
The massive $100bn IMF-led rescue operation has prevented an immediate collapse of the major southeast Asian economies and delayed the impact of the crisis on the dominant imperialist nations. In the third week of January, IMF managing director Michel Camdessus felt able to reject fears that the Asian crisis would unleash a deflationary wave throughout the world economy. The US economy, he said, was well able to absorb the shocks, the impact on the European Union would be marginal, and the threat to the emerging markets in Latin America and eastern Europe was limited. Confidence is everything when the foundations are rotten and it was, after all, what investors on the stockmarkets needed to hear.
The prospect of immediate gains for the major imperialist banks and multinationals reinforced this confidence, as the IMF-imposed conditions for the rescue package prised open the southeast Asian economies to these international predators. They can barely conceal their glee at their good fortune. Investment bankers are ecstatic. There is ‘money to be made’ bringing together multinational corporations looking for cheap Asian assets and debt-laden companies anxious to sell parts of their business. ‘You’d have to be asleep if you’re not looking at the leverage you could have’, with many Asian currencies plunging in value, said Ford Chairman, Alex Trotman. And Lawrence Heyworth, market strategist at Flemings, tells us that, for western managers, falling Asian equity prices are a ‘once in a lifetime opportunity’, with many assets selling below their replacement cost value (Financial Times 17, 19 December 1997 and 19 January 1998). Vast profits are there to be made out of the misery imposed by the IMF on the southeast Asian people. Southeast Asia is to be recolonised.*
An economic and social catastrophe
As each week passes the extent of the economic and social crisis engulfing the nations of southeast Asia becomes more evident.
South Korea
The $55bn IMF-led bailout of South Korea was imposed at a great economic and social cost. With the won devalued by nearly 50%, the stockmarket having fallen by around 40%, and South Korea’s short-term foreign debt far worse than initially reported, with $100bn due in the coming year, the IMF negotiators held all the cards. They insisted that three commercial and 12 investment banks be closed down and South Korea’s capital markets be opened fully to foreign investors. The limit on foreign shareholding was raised from 26% to 50% from 15 December 1997 and to 55% from the end of 1998. South Korea’s growth rate in 1998 is to be limited to 3%, compared to 6% in 1997, and interest rates are to be raised to between 18% and 20%, with inflation at 5% or below, as part of a credit squeeze to bring about a radical corporate restructuring, forcing many South Korean companies into bankruptcy. South Korea’s ‘rigid’ labour laws are to be reformed to allow the easier sacking of workers. The rate of unemployment is expected to double.
Eight South Korean conglomerates and 15,000 companies have already filed for bankruptcy. 14 merchant banks were suspended to find new capital or go under. 500 companies went bankrupt in the first week of January alone, and 3,000 bankruptcies are expected for the month. Only 87 out of a total of 653 South Korean listed non-financial companies are considered safe from international predators.
Little wonder that US bankers are pleased with the progress in resolving South Korea’s financial problems. International banks, after a great deal of pressure by the US government, have agreed to exchange some $23bn of short-term debt from Korean banks for loans of longer maturities. International fund managers and investors have been rescued by the IMF bailout and more and more of the profits of companies based in South Korea will flow to imperialist banks and multinationals. The losers will be the South Korean working class as growing unemployment will drive millions of families, unprotected by unemployment insurance, into poverty and destitution. The class struggle will intensify.
Indonesia
Indonesia, the fourth most populated country in the world, came closest to meltdown of all the southeast Asian countries. Its currency and stockmarket went into virtual free fall. The rupiah lost 85% of its value against the US dollar in the seven months from July last year. The stockmarket fell by some 50% from last year’s peak. Indonesia’s foreign debt has been estimated at anything from $140bn to $200bn. Private companies owe $80bn in foreign currency debt, most of it short-term and unhedged. Only 22 of the 282 companies listed on the Jakarta stock exchange are financially viable. Most of Indonesia’s 225 banks are undercapitalised and are heavily dependent on dollar loans. Essential imports cannot be obtained because foreign banks will not even accept letters of credit from Indonesian state banks. Indonesia’s GDP measured in US dollars has fallen from $228bn in 1996 to $49.6bn in 1997.
Foreign predators are homing in on debt-ridden but undervalued companies. Nutricia International, the Dutch food group, is set to become the first overseas investor to take a majority stake in a listed Indonesian company. ‘We’re looking at opportunities the likes of which we have never seen before in any Asian country’ said the managing director at Peregrine, Hong Kong’s largest investment bank (Financial Times 17 December 1997). Peregrine itself will not be around to reap these dividends. It went into liquidation on 12 January 1998 with debts of at least $600m, swept away in the wash of the Asian crisis as a result of huge losses on dollar loans to Indonesian companies. On 27 January Indonesia called a halt to corporate debt repayment – a de facto debt moratorium – as the government set up a debt restructuring agency, saying it would guarantee most deposits and credits and end restrictions on foreign bank ownership.
The IMF rescue package of $43bn had its price. Subsidies and tariffs have to be cut, monopolies eliminated and many government projects cancelled. 5% growth is needed to absorb the 2.4m workers who enter the job market each year. Zero growth is projected. Thousands of Indonesian migrant workers are being sent home from Malaysia and Thailand, countries in the midst of their own crisis. 10,000 workers have been kicked out of Saudi Arabia. Unemployment is set to rise by at least a million to 2.7m. Stagflation is setting in with prices now rising at an annual rate of 60%. Electricity prices are set to treble. With higher fuel prices leading to higher transport costs, workers will need pay increases just to be able to get to work. But companies are cutting wages.
Workers are already on strike in a number of Indonesia’s large factories. Many more will follow. After the Ramadan holiday ended in the last week of January, many workers had no jobs to come back to. Thousands will not have been paid the traditional ’13th month’ annual bonus which they rely on and consider part of their annual wage. 500 workers at one ceramics factory are already on strike protesting at receiving part of their bonus in unsold cups and dishes. Adding to this turmoil is a failed harvest and drought in rural Java, making a mass influx of sacked workers to such areas insupportable. Civil unrest, riots and strikes are inevitable.
In Thailand cuts in the traditional year-end bonuses have led to 3,000 car-parts workers battling with riot police in Bangkok. Last year Thai workers burnt down a Sanyo factory complex when their bonuses were cut. 800,000 Thai workers have recently been made unemployed and with the Thai economy rapidly deteriorating the situation could easily explode.
Meanwhile stockmarkets are booming…
Over the last three years the rise in share prices in the USA has created $3,000bn of new wealth for US investors, at least on paper. The S&P 500 Index rose by 35% in 1995, 23% in 1996 and a further 27% in 1997 – the first time it has risen over 20% for three successive years. The value of US stocks is greater than the country’s annual economic output of about $8,000bn, something that did not happen at the peak of the stockmarket boom before the 1929 crash. Over 50m households, mainly middle class families, own shares either directly or in mutual funds – twice as many as in the 1980s. This new stockmarket wealth underpins the US consumer boom. Many people have borrowed massively to maintain their spending. A crash in the stockmarkets would destroy the foundations of middle class prosperity in the USA and generate catastrophic social consequences. This explains the central role the US government has played in ensuring the Asian financial crisis was contained in its impact. The IMF was simply the USA’s agent in this process. The necessary condition for continued middle class prosperity and hence social stability in the USA is the poverty and destitution of the southeast Asian people.
The same is true for Britain. Last year the value of shares rose by nearly 25% from £967bn to £1,200bn, a record increase of £233bn in a single year – equivalent to £11,500 for each working person. With the privatisation of social welfare, middle class prosperity can only be sustained if this process continues. Just as in the USA, social stability in Britain, as inequality grows, depends on the allegiance of the middle class and highly-paid working class, that is it depends on a rapacious imperialism.
Gnawing away at the foundations
What happens in Japan is crucial to the longer-term impact of the Asian financial crisis. It has become clear that the situation is far worse than initially disclosed. The banking system’s bad loans are 77 trillion yen ($590bn), nearly three times that originally disclosed. The Japanese government has now announced that it will spend up to 30 trillion yen ($230bn) to rescue the banking system to the great relief of the other imperialist powers. However, with the Japanese economy stagnant, bankruptcies, already at record highs, are increasing. The bad loans problem can only worsen. In addition it is saddled with more than $276bn loans to companies in southeast Asia, many of which are irrecoverable. Further bankruptcies of Japanese financial institutions are to be expected. Little wonder that the international markets are resistant to lend to Japanese banks even in yen.
The impact of the Asian financial crisis on the European Union cannot be dismissed as marginal. Europe has a higher volume of exports to the southeast Asian region than the United States, and a greater banking exposure – $360bn – than the US and Japan combined. The German chemical industry expects a one-third reduction of its growth rate and Deutsche Bank a cut in operating profits by one third. Sales in luxury goods, diamonds, the music industry and electronics have all seen dramatic falls. The Asian crisis is slowly gnawing away at the foundations of international capitalism.
With sharp falls in growth in the major imperialist nations forecast for the coming year, any serious eruption of working class struggle in southeast Asia could be the catalyst for a major collapse of the world’s stockmarkets. The social consequences will be enormous. Wherever we are, in the heartlands of imperialism or the devastated countries of southeast Asia, it is clear that capitalism has no answers to the problems facing the vast majority of the world’s population. It is time to fight for an alternative. It is time to rebuild socialism.
Notes
* See David Yaffe ‘Countdown to capitalism’s collapse’ in Fight Racism! Fight Imperialism! 140 December 1997/January 1998 for discussion of this development and a background to the international financial crisis.
