Tigers in Low Currency
Even for the most hardcore skeptics and critics of East and South-East Asia’s so called ‘Tiger’ economies, the speed at which these modern industrial animals have collapsed is breathtaking.
Since July this year — when Thailand’s economy was the first to go for a toss with its currency, the baht, falling by nearly 100 percent — the Indonesian rupiah has depreciated by 137 percent, the Malaysian ringitt and the Filipino peso by nearly 50 percent. Even the once mighty South Korean won has fallen by more than 50 percent — all within the space of just one month reducing what was the world’s eleventh largest economy to the ranks of the third world.
All except Malaysia have rushed to the International Monetary Fraud — err Fund to beg for billions of dollars in loans to help them prevent a total bankruptcy of their national coffers. While Thailand was the first to knock on IMF doors and got a modest US$16 billion, South Korea has been pledged a whopping US$56 billion — a sum which despite being the highest such rescue package ever in the world is considered by most analysts to be at least US$40 billion short of the actual amount required. (South Korea has a total external debt of US$171 billion). The Indonesian rescue package is estimated to be worth nearly US$40 billion, while the Phillipines is already under IMF tutelage for more than ten years now. The IMF’s standard recipe of forcing cuts in the budget, privatisation and further opening up of the economy to foreign participation is expected to wreak havoc socially with hundreds of thousands being forced out of jobs, the already meagre spending on social welfare cut drastically and millions pushed below the poverty line.
From being the stars of the global capitalist firmament, East and south East Asia’s economies have now crashed to the ground for a variety of reasons. While those on the right have claimed that the collapse signifies the failure of policies of state intervention in the marketplace, many on the Left have pointed out that it is more a defeat for the foreign funds driven, export led growth model pushed by free market economists as a panacea for all the ills of the developing world.
But a closer look at the ongoing economic crisis reveals far more serious implications not just for the debate among economists but also for politics in both the region and the world at large. Among these are:
1) The abrupt collapse of rapidly growing East and South-East Asian economies has put a brake on the creation of new centres of economic (and hence political) power in Asia — centres which were implicitly in the process of challenging domination of the global economy by western capitalist powers and for reasons of their own slowly breaking free from US political hegemony. For example, apart from creating their own regional trade blocs like the ASEAN Free Trade Zone and working on the proposed (and vigorously opposed by the US) East Asian Economic Caucus, countries in the region were also moving towards setting up mechanisms for meeting their security needs. Though a bulk of the national elites in the region started off as comprador agents to Japanese and Western companies many have accumulated sufficient wealth and power to become competitors to their foreign counterparts in several areas.
The rapid fall in values of currencies and stock markets throughout the region is directly linked to the pullout of vast amounts of foreign funds-mainly from countries like the US, UK and from western Europe. Whether this is part of a large conspiracy by the West (as Malaysian Prime Minister Mahathir Mohamad claims) remains to be investigated properly, but the net result has been the wholesale ‘massacre’ of economies that were capable of challenging the West on its own terms. In fact the situation now is such that in their desperation governments in Thailand, Indonesia and even South Korea are being forced to open up the last remaining areas of domestic economic control to foreigners. With their vastly stronger currencies, western investors are now poised to buy up a large portion of the industrial and financial sectors in these countries at throwaway prices. So after the demolition of the Soviet-led East European economic model eight years ago, it is now the turn of the Japan-led East Asian model to fall — all of which leaves only the Western capitalist models shining brighter on the global firmament.
2) In some ways the collapse of economies in this region can also be considered as among the final phases of the Vietnam War. The reason is that the rise of both the authoritarian political systems and the pro-free market economies in countries like South Korea, Thailand, Indonesia and Malaysia is directly linked to the Vietnam War period in the sixties when US interventionism helped prop up regimes that were perceived as bulwarks against the spread of communism. While the corrupt and autocratic elites of these countries are definitely responsible for much of the current economic mess, it is also true that with the end of the Cold War the US and other Western powers see no special need to economically and politically ‘sustain’ these elites by giving them either endless access to their own markets or by supporting unpopular governments like in the past. All these years, within these countries, while authoritarian regimes were able to keep opposition down using a mix of economic ‘carrots’ and political ‘sticks’, it is doubtful if this can be maintained much longer. The pauperisation of entire populations due to the economic crisis is either likely to give rise to popular revolt against the elites or the emergence of ultra-nationalist and anti-working class regimes from within the elites.
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Globalisation and the Third World The Asian ‘tiger’ economies, assiduously projected as the model for developing countries, are now caught in a web of crisis. South Korea’s growth rate is slowing down and its trade balance is upset. It was already rocked by the student protests against the stationing of 37000 Us troops in South Korea. Now workers have come out on the streets. Tens of thousands of workers have marched through the streets of Seoul and other cities against a new labour law that makes it easier for employers to fire their workers. In fact, the run on Third World currencies and sudden capital flight resulting in a debilitating impact on the economy, first witnessed in a very acute form in the case of the Mexican meltdown, is becoming a wider phenomenon rendering many Third World economies highly vulnerable in the era of globalisation. On the whole in seven years of globalisation, the growth record of the world economy has remained laclustre - the average growth rate in this period being lower than the rate in the 1970s. (From the Pol.-Org. Report adopted at CPI(ML)’s Sixth Party Congress, pp.7-8) |
South Korea and Indonesia, both of which have small but more organised left wing groups, seem to have the best chances of throwing up militant, progressive anti-elite movements. In Malaysia and Thailand the mood can turn semi-fascist depending on how well or badly progressive elements respond to the situation. In all these countries, however, there is already a groundswell of opposition rising to the new economic austerity measures — imposed by the IMF — which transfer the burden of paying for the crisis onto the shoulders of the common people. Overall, the economic crisis has thrown up an opportunity to bring about profound political changes in the region- changes that can challenge US and Western imperialism much more effectively if it results in the emergence of new pro-people, democratic institutions.
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Currency Turmoil: The Preliminaries Global Village: Capital account convertibility turns the world economy into a single ocean and the STR makes huge financial transactions across the globe a matter of minutes. |
3) If reckless borrowing from foreign sources, excessive speculation and profligate spending were the reasons for the economic crisis in east and south-east Asia, for the same reasons it may not be very long before the US economy also faces a similar crisis. Dependent on massive inflows of foreign funds to finance its balooning current account and budget deficits, with a highly overvalued currency and very precarious stock markets seeking new speculative ‘highs’ the US economy is on the verge of the greatest collapse the world has seen since the Great Depression of the thirties. East Asia’s miseries, particularly those of South Korea and Japan, are bound to affect the US despite all the hype put out by the Clinton administration about how strong their economy is. To begin with, for the first time since the Japanese government is seriously considering selling off a portion of its US$300 billion worth of US treasury bonds to help finance the bailout of its own collapsing banks and financial institutions. If that happens, even in a small way, the result will be at best a steep fall in the value of the US dollar and at worst a meltdown of international confidence in the US economy’s creditworthiness. The US stock markets are also likely to fall drastically from their current high levels if the country’s financial markets get rocked. In a worst case scenario, billions of dollars could be wiped out by the fall of both the US currency and stock markets — an event that will surely have a contagion effect on the economies of Western Europe and of course the rest of the world.
This apprehension was expressed by none other than the President-elect Kim Dae-Tung on December 23. He was reacting to the steepest tripple plunges ever recorded in South Korea (SK) in a single day — in its currency value, international credit rating and composite stock index — with foreign exchange reserves barely enough for one day. The lowered credit rating puts the OECD country in the same bracket with Pakistan. The governor of the Central Bank immediately flew to Tokyo with an appeal for help. |
4) Though the economic turmoil in east and south east Asia has not yet hit China, it seems to be only a matter of time before this happens. In some ways the rise of China as one of the largest exporters of a variety of low-priced consumer goods in the past decade is what undercut the competitiveness of south-east Asian economies and made them more vulnerable to crisis. However, now that the Chinese yuan has become stronger against currencies from countries competing for the same portions of the world market, it is likely that China may see a slump in economic growth next year. While this by itself is not very significant, a bigger problem will arise due to economic recession in the region resulting in shrinking markets and a fall in foreign investment coming to mainland China from overseas Chinese, South Korean and Japanese investors. If there is a downturn in the US economy then Chinese exports will also be hit hard- and any major slow down in domestic growth resulting from this will have a political backlash within China where the Dengist policies of ‘market-Leninism’ has already resulted in a sharp rise in income inequalities between the rich and the poor and between rural and urban areas. The immediate international beneficiaries of any such political turmoil in China would again be the US and other western powers-notably its Anglo-Saxon brother Britain- which have been trying for decades to bring China to her knees in their quest for a unipolar world domination.
For Indian policy makers who have led the country up the dubious path of export led-growth and slavishly followed the IMF’s economic prescriptions the lessons from the ongoing crisis in east Asia are plentiful. Instead of foolishly rushing into the abyss of globalisation, India has to first put its own house in order- which means a radical improvement in living conditions, nutrition, education and health for its population, the undertaking of large scale job creation projects and serious pursuit of self-reliance in both agriculture and industry. (East Asia’s example should be enough to disprove the stubborn claim that globalisation of the Indian economy is the only way forward.) If these goals are beyond the capability of the Indian ruling classes, they must at least be prevented from recklessly mortgaging the country’s social and economic future to the forces of international imperialism.
-- Sundaram
(The boxes in the commentary have been inserted by us. — ed.)