(Olga & Alain)
- Monday, 21 September 1998 -
"Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men".
-- Franklin D. Roosevelt's First Inaugural Address, 1933
Humanity is undergoing in the post-Cold War era an economic crisis of unprecedented scale leading to the rapid impoverishment of large sectors of the World population. The plunge of national currencies in virtually all major regions of the World has contributed to destabilising national economies while precipitating entire countries into abysmal poverty.
The crisis is not limited to Southeast Asia or the former Soviet Union. The collapse in the standard of living is taking place abruptly and simultaneously in a large number of countries. This Worldwide crisis of the late twentieth century is more devastating than the Great Depression of the 1930s. It has far- reaching geo-political implications; economic dislocation has also been accompanied by the outbreak of regional conflicts, the fracturing of national societies and in some cases the destruction of entire countries. This is by far the most serious economic crisis in modern history.
The existence of a "global financial crisis" is casually denied by the
Western media, its social impacts are downplayed or distorted; international
institutions including the United Nations deny the mounting tide of World
poverty: "the progress in reducing poverty over the [late] 20th century
is remarkable and unprecedented..."1. The
"consensus" is that the Western economy is "healthy" and that "market corrections"
on Wall Street are largely attributable to the "Asian flu" and to Russia's
troubled "transition to a free market economy".
The ruble's free-fall had spurred Moscow's largest commercial banks
into bankruptcy leading to the potential take- over of Russia's financial
system by a handful of Western banks and brokerage houses. In turn, the
crisis has created the danger of massive debt default to Moscow's Western
creditors including the Deutsche and Dresdner banks. Since the outset of
Russia's macro-economic reforms, following the first injection of IMF "shock
therapy" in 1992, some 500 billion dollars worth of Russian assets -- including
plants of the military industrial complex, infrastructure and natural resources
-- have been confiscated (through the privatisation programmes and forced
bankruptcies) and transferred into the hands of Western capitalists.3
In the brutal aftermath of the Cold War, an entire economic and social
system is being dismantled.
The appropriation of global wealth through this manipulation of market forces is routinely supported by the IMF's lethal macro-economic interventions which act almost concurrently in ruthlessly disrupting national economies all over the World. "Financial warfare" knows no territorial boundaries; it does not limit its actions to besieging former enemies of the Cold War era. In Korea, Indonesia and Thailand, the vaults of the central banks were pillaged by institutional speculators while the monetary authorities sought in vain to prop up their ailing currencies. In 1997, more than 100 billion dollars of Asia's hard currency reserves had been confiscated and transferred (in a matter of months) into private financial hands. In the wake of the currency devaluations, real earnings and employment plummeted virtually overnight leading to mass poverty in countries which had in the post-War period registered significant economic and social progress.
The financial scam in the foreign exchange market had destabilised national economies, thereby creating the preconditions for the subsequent plunder of the Asian countries' productive assets by so-called "vulture foreign investors".6 In Thailand, 56 domestic banks and financial institutions were closed down on orders of the IMF, unemployment virtually doubled overnight.7 Similarly in Korea, the IMF "rescue operation" has unleashed a lethal chain of bankruptcies leading to the outright liquidation of so-called "troubled merchant banks". In the wake of the IMF's "mediation" (put in place in December 1997 after high-level consultations with the World's largest commercial and merchant banks), "an average of more than 200 companies [were] shut down per day (...) 4,000 workers every day were driven out onto streets as unemployed".8 Resulting from the credit freeze and "the instantaneous bank shut-down", some 15,000 bankruptcies are expected in 1998 including 90 percent of Korea's construction companies (with combined debts of $20 billion dollars to domestic financial institutions).9 South Korea's Parliament has been transformed into a "rubber stamp". Enabling legislation is enforced through "financial blackmail": if the legislation is not speedily enacted according to IMF's deadlines, the disbursements under the bail-out will be suspended with the danger of renewed currency speculation.
In turn, the IMF sponsored "exit programme" (ie. forced bankruptcy)
has deliberately contributed to fracturing the chaebols which are now invited
to establish "strategic alliances with foreign firms" (meaning their eventual
control by Western capital). With the devaluation, the cost of Korean labour
had also tumbled: "It's now cheaper to buy one of these [high tech] companies
than buy a factory -- and you get all the distribution, brand-name recognition
and trained labour force free in the bargain"...10
This ongoing pillage of central bank reserves, however, is by no means
limited to developing countries. It has also hit several Western countries
including Canada and Australia where the monetary authorities have been
incapable of stemming the slide of their national currencies. In Canada,
billions of dollars were borrowed from private financiers to prop up central
bank reserves in the wake of speculative assaults. In Japan -- where the
yen has tumbled to new lows -- "the Korean scenario" is viewed (according
to economist Michael Hudson), as a "dress rehearsal" for the take over
of Japan's financial sector by a handful of Western investment banks. The
big players are Goldman Sachs, Morgan Stanley, Deutsche Morgan Gruenfell
among others who are buying up Japan's bad bank loans at less than ten
percent of their face value. In recent months both US Secretary of the
Treasury Robert Rubin and Secretary of State Madeleine K. Albright have
exerted political pressure on Tokyo insisting "on nothing less than an
immediate disposal of Japan's bad bank loans -- preferably to US and other
foreign "vulture investors" at distress prices. To achieve their objectives
they are even pressuring Japan to rewrite its constitution, restructure
its political system and cabinet and redesign its financial system... Once
foreign investors gain control of Japanese banks, these banks will move
to take over Japanese industry..."11
But "where did the money come from" to finance these multi- billion dollar operations? Only a small portion of the money comes from IMF resources: starting with the Mexican 1995 bail-out, G7 countries including the US Treasury were called upon to make large lump-sum contributions to these IMF sponsored rescue operations leading to significant hikes in the levels of public debt.13 Yet in an ironic twist, the issuing of US public debt to finance the bail-outs is underwritten and guaranteed by the same group of Wall Street merchant banks involved in the speculative assaults.
In other words, those who guarantee the issuing of public debt (to finance
the bailout) are those who will ultimately appropriate the loot (eg. as
creditors of Korea or Thailand) -- ie. they are the ultimate recipients
of the bailout money (which essentially constitutes a "safety net" for
the institutional speculator). The vast amounts of money granted under
the rescue packages are intended to enable the Asian countries meet their
debt obligations with those same financial institutions which contributed
to precipitating the breakdown of their national currencies in the first
place. As a result of this vicious circle, a handful of commercial banks
and brokerage houses have enriched themselves beyond bounds; they have
also increased their stranglehold over governments and politicians around
The global banks have a direct stake in the decline of national currencies.
In April 1997 barely two months before the onslaught of the Asian currency
crisis, the Institute of International Finance (IIF), a Washington based
think-tank representing the interests of some 290 global banks and brokerage
houses had "urged authorities in emerging markets to counter upward exchange
rate pressures where needed...".15 This
request (communicated in a formal Letter to the IMF) hints in no uncertain
terms that the IMF should advocate an environment in which national currencies
are allowed to slide.16 Indonesia was
ordered by the IMF to unpeg its currency barely three months before the
rupiahs dramatic plunge. In the words of American billionaire and presidential
candidate Steve Forbes: "Did the IMF help precipitate the crisis? This
agency advocates openness and transparency for national economies, yet
it rivals the CIA in cloaking its own operations. Did it, for instance,
have secret conversations with Thailand, advocating the devaluation that
instantly set off the catastrophic chain of events?" (...) Did IMF prescriptions
exacerbate the illness? These countries' moneys were knocked down to absurdly
The IMF's resolve to deregulate capital movements was taken behind closed doors (conveniently removed from the public eye and with very little press coverage) barely two weeks before citizens' groups from around the World gathered in late April 1998 in mass demonstrations in Paris opposing the controversial Multilateral Agreement on Investment (MAI) under OECD auspices. This agreement would have granted entrenched rights to banks and multinational corporations overriding national laws on foreign investment as well derogating the fundamental rights of citizens. The MAI constitutes an act of capitulation by democratic government to banks and multinational corporations.
The timing was right on course: while the approval of the MAI had been
temporarily stalled, the proposed deregulation of foreign investment through
a more expedient avenue had been officially launched: the Amendment of
the Articles would for all practical purposes derogate the powers of national
governments to regulate foreign investment. It would also nullify the efforts
of the Worldwide citizens' campaign against the MAI: the deregulation of
foreign investment would be achieved ("with a stroke of a pen") without
the need for a cumbersome multilateral agreement under OECD or WTO auspices
and without the legal hassle of a global investment treaty entrenched in
Discussed behind closed doors in April 1998, a more perceptive initiative (couched in softer language) was put forth by the World's largest banks and investment houses through their Washington mouthpiece (the Institute of International Finance). The banks proposal consists in the creation of a "Financial Watchdog -- a so-called "Private Sector Advisory Council" -- with a view to routinely supervising the activities of the IMF. "The Institute [of International Finance], with its nearly universal membership of leading private financial firms, stands ready to work with the official community to advance this process."22 Responding to the global banks initiative, the IMF has called for concrete "steps to strengthen private sector involvement" in crisis management -- what might be interpreted as a "power sharing arrangement" between the IMF and the global banks.23 The international banking community has also set up it own high level "Steering Committee on Emerging Markets Finance" integrated by some of the World's most powerful financiers including William Rhodes, Vice Chairman of Citibank and Sir David Walker, Chairman of Morgan Stanley. The hidden agenda behind these various initiatives is to gradually transform the IMF -- from its present status as an inter-governmental body -- into a full fledged bureaucracy which more effectively serves the interests of the global banks. More importantly, the banks and speculators want access to the details of IMF negotiations with member governments which will enable them to carefully position their assaults in financial markets both prior and in the wake of an IMF bailout agreement. The global banks (pointing to the need for "transparency") have called upon "the IMF to provide valuable insights [on its dealings with national governments] without revealing confidential information...". But what they really want is privileged inside information.24
The ongoing financial crisis is not only conducive to the demise of national State institutions all over the World, it also consists in the step by step dismantling (and possible privatisation) of the post War institutions established by the founding fathers at the Bretton Woods Conference in 1944. In striking contrast with the IMF's present-day destructive role, these institutions were intended by their architects to safeguard the stability of national economies. In the words of Henry Morgenthau, US Secretary of the Treasury in his closing statement to the Conference (22 July 1944): "We came here to work out methods which would do away with economic evils -- the competitive currency devaluation and destructive impediments to trade -- which preceded the present war. We have succeeded in this effort".25
1. United Nations Development Program, Human Development Report, 1997, New York, 1997, p. 2.
2. Robert O'Harrow Jr., "Dow Dives 513 Points, or 6.4", Washington Post, 1 September 1998, page A.
3. Bob Djurdjevic, Return looted Russian Assets, Aug. 30, Truth in Media's Global Watch, Phoenix, 30 August 98.
4. See "Society under Threat - Soros", The Guardian, London, 31 October 1997.
5. Statement at the Meeting of the Group of 15, Malacca, Malaysia, 3 November 1997, quoted in the South China Morning Post, Hong Kong, 3 November 1997.
6. See Michael Hudson and Bill Totten, "Vulture speculators", Our World, No. 197, Kawasaki, 12 August 1998.
7. Nicola Bullard, Walden Bello and Kamal Malhotra, "Taming the Tigers: the IMF and the Asian Crisis", Special Issue on the IMF, Focus on Trade No. 23, Focus on the Global South, Bangkok, March 1998.
8. Korean Federation of Trade Unions, "Unbridled Freedom to Sack Workers Is No Solution At All", Seoul, 13 January 1998.
9. Song Jung tae, "Insolvency of Construction Firms rises in 1998", Korea Herald, 24 December 1997. Legislation (following IMF directives) was approved which dismantles the extensive powers of the Ministry of Finance while also stripping the Ministry of its financial regulatory and supervisory functions. The financial sector had been opened up, a Financial Supervisory Council under the advice of Western merchant banks arbitrarily decides the fate of Korean banks. Selected banks (the lucky ones) are to be "made more attractive" by earmarking a significant chunk of the bail- out money to finance (subsidise) their acquisition at depressed prices by foreign buyers, -- ie. the shopping-spree by Western financiers is funded by the government on borrowed money from Western financiers.
10. Michael Hudson, Our World, Kawasaki, December 23, 1997.
11. Michael Hudson, "Big Bang is Culprit behind Yen's Fall", Our World, No. 187, Kawasaki, 28 July 1998. See also Secretary of State Madeleine K. Albright and Japanese Foreign Minister Keizo Obuchi, Joint Press Conference, Ikura House, Tokyo, July 4, 1998 contained in Official Press Release, US Department of State, Washington, 7 July, l998.
12. See Nicola Bullard, Walden Bello and Kamal Malhotra, op. cit.
13. On 15 July 1998, the Republican dominated House of Representatives slashed the Clinton Administration request of 18 billion dollar in additional US funding to the IMF to 3.5 billion. Part of the US contribution to the bail-outs would be financed under the Foreign Exchange Stabilisation Fund of the Treasury. The US Congress has estimated the increase in the US public debt and the burden on taxpayers of the US contributions to the Asian bail-outs.
14. Financial Times, London, 27-28 December 1997, p. 3).
15. Institute of International Finance, Report of the Multilateral Agencies Group, IIF Annual Report, Washington, 1997.
16. Letter addressed by the Managing director of the Institute of International Finance Mr. Charles Dallara to Mr. Philip Maystadt, Chairman of the IMF Interim Committee, April 1997, quoted in Institute of International Finance, 1997 Annual Report, Washington, 1997.
17. Steven Forbes, "Why Reward Bad Behaviour, editorial, Forbes Magazine, 4 May 1998.
18. "Hot money" is speculative capital, "dirty money" are the proceeds of organised crime which are routinely laundered in the international financial system.
19. International Monetary Fund, Communique of the Interim Committee of the Board of Governors of the International Monetary Fund, Press Release No. 98/14 Washington, April 16, 1998. The controversial proposal to amend its articles on "capital account liberalisation" had initially been put forth in April 1997.
20. See Communique of the IMF Interim Committee, Hong Kong, 21 September 1997.
21. See Steven Forbes, op cit.
22. Institute of International Finance, "East Asian Crises Calls for New International Measures, Say Financial Leaders", Press Release, 18 April 1998.
23. IMF, Communique of the Interim Committee of the Board of Governors, April 16, 1998.
24. The IIF proposes that global banks and brokerage houses could for this purpose "be rotated and selected through a neutral process [to ensure confidentiality], and a regular exchange of views [which] is unlikely to reveal dramatic surprises that turn markets abruptly (...). In this era of globalization, both market participants and multilateral institutions have crucial roles to play; the more they understand each other, the greater the prospects for better functioning of markets and financial stability... ". See Letter of Charles Dallara, Managing Director of the IIF to Mr. Philip Maystadt, Chairman of IMF Interim Committee, IIF, Washington, 8 April 1998.
25. Closing Address, Bretton Woods Conference, Bretton Woods, New Hampshire, 22 July 1944. The IMF's present role is in violation of its Articles of Agreement.
Michel Chossudovsky is a Professor of Economics, University of Ottawa and author of "The Globalisation of Poverty, Impacts of IMF and World Bank Reforms", Third World Network, Penang and Zed Books, London, 1997. He is also the author of "Dismantling Yugoslavia, Colonizing Bosnia," Covert Action Quarterly, Washington, D.C., Spring 1996, Number 56 and "The Business of Crime and the Crimes of Business: Globalization and the Criminalization of Economic Activity," Covert Action Quarterly, Washington, D.C., Fall 1996, Number 58.
Originally published in the Antifa Info-Bulletin, Research Supplement, September 24, 1998, this article appears in Tusovka (in English original and in Russian translation) with the author's permission. To publish or reproduce this text, contact the author at email@example.com or fax 1-514-425-6224.
Michel Chossudovsky, Department of Economics, University
of Ottawa, Ottawa, K1N6N5 Canada; Voice box: 1-613-562-5800, ext. 1415;
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