AN EAST ASIAN FINANCIAL CRISIS MADE IN THE US
According to recent reports in the New York Times, 'Washington's policies ... fostered vulnerabilities that were an underlying cause of the economic crisis that began in Thailand in July 1997, rippled through Asia and Russia and is now shaking Brazil and Latin America'. The policies included pushing hard for financial liberalisation and freer capital flows.
By Hardev Kaur
Is the United States' obsession with market liberalisation the cause for the on-going currency and financial crisis? It would appear to be so, going by the statements of various US officials as reported in the New York Times in mid-February.
The articles - the work of 10 correspondents reporting from eight countries over five months - according to a columnist based in Tokyo revealed 'the ruthless way in which the US Administration has pursued its agenda of prising open financial markets in Asia and elsewhere'.
While there may have been weaknesses in developing countries, they did not deserve to be 'hammered' by the 'financial pendulum or wrecking ball' sparked off by US policies.
For more than 17 months, Asian countries were told that it was 'Asia's own fault'. They were lectured about the fact that it was 'cronyism, corruption and the lack of transparency' which had prompted the economic problems. But now, according to the New York Times, it would seem as if these factors '... were not necessary to touch off a crisis'.
It reports that 'Washington's policies ... fostered vulnerabilities that were an underlying cause of the economic crisis that began in Thailand in July 1997, rippled through Asia and Russia and is now shaking Brazil and Latin America'.
'Financial liberalisation was undertaken in countries that didn't have the infrastructure to support it,' Ricki R Helfer, an international bank regulator and former chairwoman of the Federal Deposit Insurance Corporation, said. She went on to add 'that this was one of the principal causes of the Asian crisis'.
In the words of former US Trade Representative, Mickey Kantor, who is now the Commerce Secretary: 'It would be a legitimate criticism to say that we should have been more nuanced, more frightened that this could have happened.' But alas, that was not the case. The US pursued and continues to pursue liberalisation with a relentless vengeance.
Kantor is also quoted as saying that the risks of financial liberalisation in the absence of modern banking and financial systems are akin to 'building a skyscraper with no foundation'.
'It's easy to see in retrospect that we probably pushed too far, too fast,' Jeffrey E Garten, a former US Commerce Department official, is reported as having said. He added that 'in retrospect, we overshot and in retrospect, there was a certain degree of arrogance'.
The push for greater liberalisation was directed at Asia in particular, largely because it was seen as a potential gold mine for American banks and brokerages. 'Our financial services industry wanted to get into these markets,' Laura D'Andrea Tyson, the former chairwoman of President Bill Clinton's Council of Economic Advisers and later the National Economic Council, is quoted as having said.
According to the reports: 'The idea was to press Asia into easing its barriers to American goods and financial services by helping Fidelity sell mutual funds, Citibank sell checking accounts and American International Group sell insurance.'
The stream of officials that passed through the region and who went around the world continued to push for banking and financial liberalisation despite explanations from countries, including Malaysia, that the developing world was not ready for liberalisation nor was it able to face an onslaught from the mighty US banks and institutions.
These explanations were ignored and countered by statements that the countries were pursuing 'protectionist' policies. Clinton's Cabinet, according to the reports, approved a 'big emerging markets' plan. The aim was to identify 10 'rising economic powers' and push 'relentlessly for business for US companies in these countries'.
Under Ron Brown, the late Commerce Secretary, a 'war room' was set up in the Department 'where computers tracked big contracts and everyone from the CIA to the ambassadors to the President himself was called upon to help land deals'.
Garten, who is now Dean of the Yale School of Management, says, 'I never went on a trip where my brief didn't include either advice or congratulations on liberalisation.'
The warning bell for a slower pace in liberalisation was reportedly sounded by some officials. But it fell on deaf ears. Tyson said that she disagreed to some extent with the push (for liberalisation) and was concerned about 'a tendency to do this as a blanket approach, regardless of the size of a country or the development of a country'.
Another former Treasury official who had issued a caution about the push was then in the White House as Chairman of the Council of Economic Advisers, Joseph Stiglitz. He had said that there was a need for the slower pacing of financial liberalisation abroad, 'but nobody listened'.
The New York Times concluded that according to some economists, some countries which are now in trouble and have weak foundations, reached this desperate stage 'partly because Washington helped supply the blueprints'. These blueprints pushed too hard for financial liberalisation and freer capital flows.
Now that much of the wealth in developing countries has been destroyed and millions have been put out of jobs, their basic human rights denied by the chaos that has been created and with some countries calling in the International Monetary Fund (IMF) for help, perhaps the US Administration has achieved its goal of 'liberalisation' at a much more rapid pace than would otherwise have been possible. The IMF's conditions, in return for funds, stipulate greater foreign ownership in many financial institutions. Many of the new foreign 'owners' just happened to be from the US.
While Kantor may now defend the US policies and argue '... that the US was insufficiently aware of the kind of chaos that financial liberalisation could provide', it is no consolation for the millions that are now suffering.
It is also no consolation to the millions that are dying due to lack of medicine or food and for those who are unable to go to school and have to resort to begging for their daily bread. It is no consolation to the decades of hard work that has been undone and the wealth that has been destroyed in a matter of days, if not hours, in the name of liberalisation and globalisation. - Third World Network Features
About the writer: Hardev Kaur is Editor-at-Large of the Malaysian New Straits Times group. The above article first appeared in the Business Times (22 February 1999).