Looks at the "Asian crisis,"

...The 1995 Mexican bailout is cited by IMF supporters as a success story...

...Predictions are that in Thailand two million workers15 percent to 20 percent of the workforce—will be jobless by year's end...

...There is nothing new about what the IMF is doing in Asia...

...The United States is being flooded with low-priced goods, particularly in manufacturing...

...But there is danger...

...THE POLITICAL forces supporting deregulation are moving on many fronts...

...Asia, Japan, and China are all trying to export their way out of economic trouble...

...If the U.S...

...Despite the lessons of indiscriminate capital liberalization, the reforms sought by the IMF are connected in one way or another with further opening up Asian economies to international capital...

...This deregulation was not accompanied by a strengthening of bank supervision...

...and two million people lost their jobs...

...bank lending was cut to near zero...

...And while the liberalized capital markets were the conduit for huge capital inflows when there was confidence in the country, they were also the means by which capital could flee at the slightest sign of trouble...

...In Southeast Asia, where the Gross National Product of most countries grew between 6 percent and 10 percent annually from 1985 to 1995, the crisis stemmed from a development process sustained in recent years by huge infusions of foreign capital...

...Financial crises will be blamed on anyone or anything other than the market...

...The IMF suggests that the rest of the world will remain unscathed...

...And U.S...

...It is not surprising, therefore, that Wall Street has put its powerful oar into the turbulent waters of Washington political lobbying to steer in this direction . . . . [T]he Wall Street-Treasury complex is unable to look much beyond the interest of Wall Street, which it equates with the good of the world...

...The IMF's Asian bailout is based on its experiences with Latin America, in particular with Mexico in 1994...

...Jagdish Bhagwati, an outspoken advocate of free trade, argues that "the claims of enormous benefits from free capital mobility are not persuasive...

...A soaring trade deficit, the aging of the business cycle and a pricking of financial market euphoria, could combine to trigger a recession...

...Dollars poured into Mexican financial markets, bidding up the peso...

...In 1993 and 1994, Mexico allowed the peso to become overvalued...

...For at least fifteen years its loans have been tied to cuts in government spending, currency devaluation, rising interest rates, and opening up to foreign ownership...

...The government itself was borrowing dollars short term, but the inevitable lowering of the exchange rate was too little and too late...

...In South Korea, unemployment is expected to reach two million by the end of 1998, or 10 percent of the workforce...

...And immediately prior to the crisis, the DISSENT 1 Summer 1998 11 IMF praised South Korea's "impressive macroeconomic performance [and its] enviable fiscal record...

...The question, then, is why the world has nonetheless been moving in this direction...

...Why is the fund insisting on opening capital markets in countries that are awash in domestic savings...

...But Federal Reserve Chairman Alan Greenspan told a Senate Committee that the crisis in Asia "could have unexpectedly large negative effects on Japan, Latin America and eastern and central Europe that, in turn, could have repercussions elsewhere including the United States...

...There are several problems with this...

...recovery stalls, then global recession would feed on itself...

...leadership, gives the mobility of capital priority over all other considerations...

...Russia's stock market has crashed, and foreign money is leaving the country...

...Those who benefit from financial deregulation will contrast the "neutral" wisdom of the markets with the venal politician...

...The fund also praised Thailand for its "consistent record of sound macro-economic management policies...

...Governments determine the legal framework in which financial institutions operate...

...firms...

...Asian businesses discovered that they could borrow abroad twice as cheaply as they could at home...

...BEFORE THE CRISIS the IMF was not worried about the massive inflows of foreign capital to the private sector in Asia...

...In 1997 that suddenly changed to an outflow of twelve billion dollars, bringing down currencies and whole economies in the process...

...Although investors were shielded from risk, and many in fact reaped handsome gains, the social cost was high...

...DISSENT /Summer 1998 on companies' foreign borrowings...

...Foreign debt escalated, most of it private and short term...

...But behind the arguments about the inability of regulating markets lies a simple fact...

...The complacency of the IMF stemmed from the assumption that the large capital inflows were fine so long as they were incurred by the private sector and not by the government to fund deficit spending...

...Countries recently celebrated as "economic tigers" are now recipients of a $121 billion bailout from the International Monetary Fund (IMF) and are seen as the source of financial contagion or global deflation...

...The World Trade Organization's recent agreement on liberalizing financial services opens banking, insurance, and securities markets to foreign firms...

...Indeed, the high levels of debt of the mid-1990s coincided with most Asian governments running budget surpluses or very slight deficits...

...social spending was slashed...

...How severe is the Asian recession...

...Lenders took flight...

...This has led some commentators to argue that the Asian crisis has been good for the United States because it reduces inflation, thereby saving the Federal Reserve Board from having to raise interest rates...

...And indeed, Japan is experiencing deflation...

...As if in support of Bhagwati's point, the Financial Times reported that U.S...

...The fact that unregulated markets have proved to be remarkably inefficient will be carefully glossed over...

...It is absurd to suppose that governments cannot, if they collectively so desire, regulate the operation of the international money markets...

...Sophisticated arguments will be made to demonstrate that deregulation is economically efficient, is in the national interest, and that attempts to regulate the markets won't work anyhow...

...The answer, according to Bhagwati, is that "Wall Street's financial firms have obvious self-interest in a world of free capital mobility, since it only enlarges the arena in which to make money...

...And meanwhile, the Organization for Economic Cooperation and Development has been pushing ahead with negotiation of the Multilateral Agreement on Investment, which liberalizes all direct foreign investment, requiring countries to grant equal treatment to foreign as well as domestic companies...

...What about the broader impact of the Asian crisis...

...James Tobin, a Nobel laureate in economics, observes that "South Koreans and other Asian countries—like Mexico in 1994-95—are victims of a flawed international exchange rate system that, under U.S...

...In Indonesia, the economic free fall has drastically increased the number of people in poverty, from twenty-two million at the beginning of the year to fifty-eight million people, and the ranks of the unemployed are expected to swell to fifteen million, or nearly 20 percent of the workforce...

...China's economy is gripped by a collapse in domestic demand, making it ever more reliant on exports to maintain growth...

...twenty thousand small- and medium-sized businessess—one-third of Mexico's commercial enterprises—went bankrupt...

...Encouraged by the IMF, Western governments, and banks, the Asian governments facilitated the flow of foreign capital by removing or loosening controls IO...

...In 1996, total private capital inflows to Indonesia, Malaysia, South Korea, Thailand, and the Philippines were ninety-three billion dollars, up from forty-one billion dollars in 1994...

...First, a program of recovery demands a more diverse platform than just waiting for foreign investors to return...

...MARK LEVINSON is the chief economist for UNITE, the Union of Needletrades, Industrial and Textile Employees...

...Wages in Mexico declined by 28 percent from 1995 to 1997...

...Despite official denials, China may be forced to devalue its currency, which would set off a new burst of jitters around the world...

...Second, even granting that focusing on the return of foreign investors alone is a valid strategy, how can they be expected to return and make profitable investments in an economy where a recession is being engineered...

...Governments have the means—whether through taxes on short-term turnover or direct capital controls: it is a question of political will...

...Two of the countries (Indonesia and Thailand) were seen as model pupils of the fund because of their steps toward capital-account liberalization...

...The IMF is currently trying to amend articles of agreement to require member governments to remove capital controls and adopt full capital-account convertibility— which means that anyone can take capital in and out of any country freely, in any volume, at any time...

...At that point, the IMF and the United States arranged a fifty-billion-dollar bailout...

...Brazil has had to raise interest rates to prevent a currency crisis...

...officials have told their "domestic audience that they will use the opportunity provided by the crisis to force radical structural reform on other 12 n DISSENT / Summer 1998 countries that would amount to what some critics see as an 'Americanization' of the world economy...

...Why has the fund done so little to ensure that creditors—European, Japanese, and American banks—bear some of the burden for their reckless lending...

...In Asia, as in Mexico, the aim of the IMF's program is to facilitate the return of foreign capital...

...The assumption was that the market would ensure a balance between international creditors and Asian banks and enterprises...

...The consequent oversupply of real estate—some twenty billion dollars worth of residential and office buildings in Thailand alone—triggered a crash...

...But leaving things to unregulated market forces meant that enormous amounts of capital went not to productive investment in manufacturing or industry but to speculative highyield areas such as real estate...

...trade representative Charlene Barshevsky has stated that "we expect these [IMF] structural reforms to create new business opportunities for U.S...