Two months after the Thai government was forced to devalue the baht, there is no end in sight to the currency crisis that has swept countries through much of Asia. In the week that ended August 29, Malaysia's stock market dropped 11 percent, Thailand's fell 10 percent, Indonesia's 14 percent, the Philippines' 17 percent, and Hong Kong's 8 percent. Stock markets throughout the region continued their plunge September 1, including in Hong Kong, Japan, south Korea, the Philippines, Indonesia, Taiwan, and Thailand.
The tremors have been felt on Wall Street, as well as in Tokyo, Sydney, and other imperialist centers around the world, fueling the stock market roller coaster of the last couple months.
The economic turmoil has cast a shadow over what has been long praised by big business as the "Asian miracle." Hong Kong, Singapore, south Korea, and Taiwan won particular claim as the so-called "four tigers," allegedly proving that capitalism can usher substantial economic growth and prosperity in the third world. Indonesia, Malaysia, the Philippines, and Thailand were also supposedly budding financial "tigers" that offered lucrative returns to capitalist investors. This miracle has not been so apparent for millions of workers and peasants in these countries, however, who will bear the brunt of the latest crisis.
In search of higher profit rates than can be extracted at home, capitalists from the United States, Japan, and other imperialist countries set up factories to exploit cheaper labor and serve as export platforms in Asia, Latin America, and the Mideast. Since the start of the 1990s they have also poured billions into the stock and bond markets of what are often called the emerging markets in the semicolonial world.
Since 1991, the gross domestic product in Malaysia, Thailand, and Indonesia has risen by roughly 7-10 percent a year, compared to about 3 percent in the United States. An article in the September 2 Financial Times noted that this growth was based on the "gap between the output per person in the tiger economies and that in the most advanced economies in the world. This gap defines the opportunity for catching up." In Thailand, the economic "miracle" has meant that between 1970 and 1995, per capita income rose from 11 percent of the level in the United States to just 28 percent. Because of their close ties to U.S. capital, most of the governments in Asia had pegged their currencies to the U.S. dollar in some way. This helped keep export prices stable and assured investors of the security of their funds.
In May of this year the Thai baht came under attack from speculators who sought to drive down the currency as not worth what the government said. For a while the Bank of Thailand sought to defend the baht, using its reserves to prop up the currency. Then on July 2, bank officials announced they were allowing the currency to float - that is freeing it from any set relation to the dollar. It immediately plunged more than 17 percent against the U.S. currency.
An article in the August 3 New York Times, headlined "The Overfed Tiger Economies," summed up what many capitalists saw as the problem in Thailand. "Speculators realized that Thailand's policy of linking its currency to the dollar and the yen was unsustainable unless the country could improve productivity, lower wages and rein in the banks and corruption," wrote David Sanger. "To make their point, they started selling the Thai baht, and the Government spent billions in the markets trying to fend off the attacks. Eventually the dam broke."
The governments of Malaysia, Indonesia, and the Philippines rapidly came under pressure to make similar moves with their currencies, as Thai exports were now substantially cheaper. All three currencies were devalued substantially over the following two weeks.
The economic crisis has had immediate repercussions for working people. When a local currency is devalued, the cost of imports rises. Inflation shot up in Thailand, especially food and fuel prices. Overall prices were up 4.9 percent in July compared to one year earlier; for staples such as rice and flour the increase was 42 percent.
Soaring interest rates also take a toll. Banks in the Philippines raised their overnight lending rate to 33.5 percent September 1, up from 12 percent the previous Friday, in an effort to prevent the further weakening of the country's peso. Such moves tend to push up all interest rates, including those on credit cards, mortgages, and other personal loans.
In Malaysia, Prime Minister Mahathir Mohamad has pledged to prop up the stock market with public pension money, in spite of rules that supposedly cap stock investments at 15 percent of such funds. At the same time, Mahathir loudly blamed the International Monetary Fund (IMF) and financial speculators for the crisis, calling them "ferocious beasts."
With the Thai economy still reeling after more than a month, the IMF and various governments in Asia offered $17 billion in "bailout" loans to Bangkok. Tokyo is putting up a quarter of the amount, as is the IMF. The remainder will be loaned by several other capitalist governments and Beijing.
Japanese companies account for half of all foreign direct investment in Thailand, and Japanese banks hold 60 percent of foreign loans there. The currency crisis has had a sharp impact on companies that have plants in Thailand. The Japanese automaker Mitsubishi, for instance, will face at least a 20 percent increase in costs for importing materials from Japan for its Thai operations, an estimated $500 million in debt owed by these plants, and a sharp decline in car sales there.
On August 27 Toyota - Japan's leading auto manufacturer - warned that sales in Thailand could fall by between 20 and 30 percent this year because of the economic turmoil caused by the baht's devaluation. The Thai auto market is dominated by Japanese companies, which have invested heavily there, having identified the country as a base of their ambitions for expansion in Asia. Toyota opened up a second factory in Thailand this year to manufacture its "Asia car." Honda opened up a plant in 1996, and several Japanese auto parts makers have also set up shop.
Nissan, Japan's second-largest automaker, had already laid off 200 seasonal workers due to sluggish sales before the baht's depreciation. Since then it has closed a commercial-vehicle factory for August and reduced production at another plant.
For these reasons, imperialist investors have big stakes in the attempted "bailout" of Thailand.
This is the largest such effort since Washington spearheaded the $50-billion loan to Mexico. After the Mexican peso plunged 40 percent against the dollar at the end of 1994, U.S. banks and other institutions feared that the Mexican government could default in interest payments on the country's huge foreign debt - which stood at $98 billion, or 38 percent of Mexico's gross domestic product last year. Washington quickly cobbled together $50 billion in "loan guarantees" to Mexico's lenders, $20 billion of which came from the U.S. Treasury and the rest from the IMF and banks in Europe. In exchange, the U.S. rulers forced the Mexican government to deposit all revenues from the state-owned oil monopoly Pemex in an account at the Federal Reserve Bank in New York until Mexico repaid the loan.
The Mexican regime also agreed to carry out a harsh austerity plan that included capping wage increases well below the rate of inflation and increasing sales taxes from 10 to 15 percent. U.S. government officials later bragged that Washington profited handsomely from the deal, making an extra $500 million in interest payments on the guarantees by charging premium rates supposedly to make up for the risk involved.
The conditions that Bangkok must meet in order to receive the bailout funds are stiff. The money is only supposed to be used to pay back investors and to rebuild foreign currency reserves that were depleted in the attempt to defend the baht. To get the loans, the Thai government agreed to carry out austerity measures that include holding down public-sector wage increases and keeping interest rates high in the name of reducing the government's deficit. It must also end the policy of providing unlimited support to flagging financial institutions and stop guaranteeing deposits.
So far, however, this arrangement hasn't succeeded in calming investors' worries over the Thai economy. On August 22, the day after the IMF formally approved its portion of the loan, the baht hit a new low, based on concern that the package was insufficient. Hours after the loan approval, the Bank of Thailand disclosed that it has $23.4 billion in currency "swap contracts" that come due in the next 12 months. Much of this speculative debt was a result of the central bank's attempt to defend the baht prior to July 2. Overall, Bangkok faces some $80 billion in foreign debt.
Economists are now predicting the Thai GDP will have a growth rate of less than 2 percent this year, and not much better in 1998, compared to 8 percent in 1996. Chaiyawat Wibulswasdi, the governor of the Bank of Thailand, said that the bailout will cost "perhaps 1 percent of GDP" over the next year. This is by far the most conservative estimate of that cost.
An article in the August 30-31 Financial Times referred to comments by Neil Saker of SocGen-Crosby, a regional brokerage house, who warned Thailand's economic woes could worsen yet. "Not only does the.. rescue package put together by the International Monetary Fund and Japan look insufficient to meet Thailand's needs," the article stated, "but the government of Chavalit Yongchaiyudh is too weak to implement the reforms mandated by the IMF, Mr. Saker says."
In fact, many of the countries engulfed in the current financial crisis have been shaken by labor protests and other political upheavals recently, which make prospects for imposing austerity none too rosy. Nationwide strikes against an antilabor law swept south Korea at the beginning of this year, for example. A series of protests in Indonesia prior to the May elections there shook the dictatorial regime of Suharto. And Hong Kong returned to Chinese sovereignty July 1, ending 150 years of British colonial rule.
Many commentaries in the big-business press are trying to be reassuring. "The east Asian model has not collapsed," insisted Martin Wolf in a column in the September 2 Financial Times. The current turmoil is a chance for Asian governments to "put their houses in order," he argued, and there's no reason why the "miracle" can't continue.
But others remain worried. "Do Asia's Troubles Affect Wall Street? You Bet," read a headline in the Wall Street Journal August 18. Referring to the recent turbulence on the New York Stock Exchange, it said, "Two things are clear. The corrections are coming more frequently; there have been a string of bad Friday's since July 1. And the corrections are being experienced in the similarly bullish trends on other bourses around the world."
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