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Date: Wed, 23 Sep 1998 16:15:33 +0100
From: firstname.lastname@example.org (Richard K. Moore)
Subject: cj#835-2/2> Chossudovsky: FINANCIAL WARFARE
Since the 1994-95 Mexican crisis, the IMF has played a crucial role in
financial environment in which the global banks and
money managers wage their speculative raids. The global banks are
craving for access to inside information. Successful speculative
attacks require the concurrent implementation on their behalf of
strong economic medicine under the IMF bail-out agreements. The
big six Wall Street commercial banks (including Chase, Bank
America, Citicorp and J. P. Morgan) and the
big five merchant
banks (Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon
Smith Barney) were consulted on the clauses to be included in the
bail-out agreements. In the case of Korea's short-term debt, Wall
Street's largest financial institutions were called in on
Christmas Eve (24 December 1997), for high level talks at the Federal
Reserve Bank of New York.14
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 international rules regulating the movements of money and capital
(across international borders) contribute to shaping the
battlefields on which banks and speculators wage their deadly
assaults. In their Worldwide quest to appropriate economic and
financial wealth, global banks and multinational corporations have
actively pressured for the outright deregulation of international
capital flows including the movement of
money.18 Caving in to these demands (after hasty consultations with G7
finance ministers), a formal verdict to deregulate capital movements
was taken by the IMF Interim Committee in Washington in April
1998. The official communique stated that the IMF will proceed with
the Amendment of its Articles with a view to
liberalization of capital movements one of the purposes of the Fund
and extending, as needed, the Fund's jurisdiction for this
purpose. 19 The IMF managing director, Mr. Michel Camdessus
nonetheless conceded in a dispassionate tone that
a number of
developing countries may come under speculative attacks after opening
their capital account while reiterating (ad nauseam) that this can
be avoided by the adoption of
sound macroeconomic policies and
strong financial systems in member countries. (ie. the IMF's
economic cure for disaster).20
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
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
As the aggressive scramble for global wealth unfolds and the financial
crisis reaches dangerous heights, international banks and speculators
are anxious to play a more direct role in shaping financial structures
to their advantage as well as
policing country level economic
reforms. Free market conservatives in the United States (associated
with the Republican Party) have blamed the IMF for its reckless
behaviour. Disregarding the IMF's intergovernmental status, they
are demanding greater US control over the IMF. They have also hinted
that the IMF should henceforth perform a more placid role (similar to
that of the bond rate agencies such as Moody's or Standard and
Poor) while consigning the financing of the multi-billion dollar
bail-outs to the private banking sector.21
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
Private Sector Advisory
Councilwith 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
steps to strengthen private sector involvement in
crisis management-what might be interpreted as a
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 effort25
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.
Society under Threat- Soros, The Guardian, London, 31
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,
Our World, No. 197, Kawasaki, 12 August 1998.
7. Nicola Bullard, Walden Bello and Kamal Malhotra,
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.
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, Communiqué 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
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, Communiqué of the Interim Committee of the Board of Governors, April 16, 1998.
24. The IIF proposes that global banks and brokerage houses could for
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.
Department of Economics,
University of Ottawa,
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