Date: Sun, 11 Jan 98 14:41:39 CST|
From: email@example.com (Brian Hauk)
Subject: `Bailouts' Fail To Halt Crisis In Asia
'Bailouts' Fail To Halt Crisis In Asia: Imperialists can't collect loan payments as workers protest
By Maurice Williams, in the Militant
Vol. 62, no. 2. 19 January 1998
"Asia was supposed to be the continent of miracles in the
90s," lamented an article in the New York Times as the new
year opened. Instead, the article continued, U.S. capitalists
face "market disaster hovering across the Pacific." Jeffrey
Schafer, a former Clinton administration Treasury official,
said that if he was still on the job, "I would be staying up
at night worrying about a major meltdown of banks in Asia,
especially in Japan."
For millions of working people in south Korea and other
countries, the currency crisis that began with the devaluation
of the Thai baht last July has led to layoffs, government
austerity measures, and other attacks on their living
standards. It is being used by capitalists in the imperialist
centers to deepen their control in the region. At the same
time, both right-wing and liberal politicians in Washington
have stepped up their nationalist rhetoric in a debate over
funding "bailout" schemes in south Korea and elsewhere in
Indonesian president Suharto announced a draft 1998 budget
January 6 that fell short of meeting the conditions stipulated
by the International Monetary Fund (IMF) in exchange for a $38
billion "rescue" loan package. The budget projects increasing
government spending over the next year, and doesn't include as
deep austerity measures as the U.S.-led imperialist lending
institution had demanded. The same day the government of
Thailand announced it would ask the IMF to ease the conditions
set for a "bailout" in that country.
The editors of the London-based Financial Times opined
January 7 that the Indonesian government's "failure to
implement the necessary structural changes means that the IMF
should be very wary indeed of relaxing its conditionality."
Officials in the Clinton administration echoed this thinly
Another wave of currency devaluations hit the region
January 7 with the baht, the Malaysian ringgit, the Philippine
peso, and the Indonesian rupiah falling to record lows against
the U.S. dollar. These currencies have plummeted 50 or 60
percent in six months, making it difficult to pay back loans
in dollars, yen, and other imperialist currencies.
Some 20 percent of the total domestic loans in Asia are
estimated to be "nonperforming" - that is they are not being
paid on time. This figure is expected to rise to at least 30
percent of the total loans in China, south Korea, Thailand,
South Korean conglomerates have been collapsing under the
weight of massive debts. The French firm Credit Lyonnais
Securities estimated that just 87 south Korean nonfinancial
enterprises, or 13 percent of those listed on the stock
exchange, are relatively safe from bankruptcy.
Debt crisis mounts in south Korea
Fearing a default on the international debt of the
government and major companies, south Korean officials
negotiated a $57 billion loan program with the IMF. But this
hasn't been enough to stabilize the economy. On December 29
several of the world's largest banks, fearing a wave of
defaults throughout the region, gave borrowers in south Korea
a one-month reprieve on loan payments of up to $15 billion
that were due by the end of 1997. The agreement was reached
after a week of negotiations among government officials and
bankers in the United States, Britain, Canada, France,
Germany, Italy, Japan, and Switzerland. Seoul had announced in
December that its foreign debt was some $153 billion; banking
officials said about $40 billion of that was short-term debt
due by March 31.
"If it got to a [debt repayment] moratorium in Korea, that
likely would have spread to Indonesia and Thailand with a
knock-on effect elsewhere," asserted one U.S. banker involved
in the negotiations. "The idea was to try and stop this at
Of the $103.4 billion in outstanding loans to south Korean
enterprises as of June 30, capitalist investors in Japan held
$23.7 billion, those in the United States owned $9.96 billion,
tycoons in France held $10.07 billion, and those in Germany
owned $10.8 billion.
"The only reason the banks are rolling over the short-term
debt is because they know if they call it, the loans will
default," asserted David Durrant, an analyst with an advisory
firm in New York. "They're bailing themselves out first
because they have nowhere to go."
The credit squeeze in south Korea is so tight that an
average of 45 companies a day declared bankruptcy in December.
More than 100 companies were reportedly threatened with
possible bankruptcy if unable to meet $1.5 billion in bond
payments by December 31. Meanwhile, some $20 billion in
capital has left the country.
More than 15,000 companies collapsed in 1997 and some 1.3
million people in south Korea could become jobless as a result
of the austerity "reforms" pushed by the IMF as a condition of
its "bailout." In November alone 100,000 people lost their
jobs there. And while an unemployment-insurance fund does
exist, fewer than 1 percent of jobless workers received
benefits. Hanbo, the country's second-largest steelmaker, had
laid off 8,000 of the 10,000 employees at its mill in Tangjin
by November last year. Although most of the plant is shut
down, company officials say the mill will try to produce 2
million tons of steel in 1998, down from its original
projection of 5 million tons.
Seoul's agreement with international bankers will not be
enough to resolve the country's financial crisis, so a team of
government officials met with U.S. and foreign bankers at J.P.
Morgan & Co. January 5 to push for $35 billion in new loans.
According to news reports, the government plans to issue $30
billion in long-term bonds to replace some of the short-term
debt that must be paid at the end of January.
Since the credit rating of south Korea was reduced to
"junk" status December 22, the government will be forced to
raise interest rates, which makes these bonds more expensive
to issue. It also makes borrowing by local enterprises more
costly, which could trigger another wave of bankruptcies and
The south Korean delegation was dispatched by Kim Yong
Hwan, who is the chief economic policy maker for the incoming
government of president-elect Kim Dae Jung. Kim Yong Hwan, a
former military official and finance minister, is also head of
an emergency economic committee created by the president-elect.
He is a senior member of the party that organized a
1961 coup, which established nearly three decades of military
Almost every week the big-business media expresses concerns
about impending mass protests. "Politicians are afraid to act
for fear of alienating the country's labor unions and sparking
mass social unrest," the Wall Street Journal reported December
The government executed 23 death-row inmates December 30,
the first use of capital punishment in two years.
A three-week nationwide strike in January 1997 delayed for
two years the implementation of a layoff clause in an
antiunion bill passed by the National Assembly. Hundreds of
thousands of workers mobilized to demand the repeal of the
measures that made it easier for bosses to fire them.
Layoffs will lead to labor struggles
"Korean companies are looking ripe to foreign buyers," ran
the December 27 front page headline in the New York Times.
Three days later, the south Korean National Assembly approved
measures to expedite foreign investment and the buyout of the
national patrimony by imperialist investors. The lawmakers,
however, balked once again at trying to hasten the labor
"reforms" demanded by Washington and the IMF, and did not
establish procedures for dismissing workers at financial
institutions that are put up for sale.
Some 300 workers rallied in front of the parliament
building December 29 to protest the legislation, and another
demonstration was organized the same day in front of the
headquarters of the National Congress for New Politics, the
party of Kim Dae Jung.
"We workers are deeply disappointed and feel betrayed by
President-elect Kim Dae Jung," said one protester at the
About one week later, Kim announced January 5 that he aimed
to speed up laws permitting job cuts at failing financial
The Finance and Economy Ministry had announced plans
January 2 to take over Korea First Bank and Seoul Bank and
sell it to foreign investors. The banks are the country's two
largest insolvent commercial banks. Korea First has an
estimated $2.67 billion in unrecoverable debt and Seoul Bank
held $2.14 billion. The U.S. banking giants Citibank and Chase
Manhattan have expressed interest in investing in the banks,
according to the south Korean news media.
The Halla Group said December 31 that it may sell its
entire paper business to the U.S. company Bowater, Inc. Halla,
south Korea's 12th-largest conglomerate, declared bankruptcy
in early December.
Deflationary pressures stemming from the economic crisis
sweeping across the Pacific have put a crimp on the profits of
some U.S. companies. For example, prices have dropped in the
steel industry. In September hot-rolled steel sheets sold for
$340 a ton. They fetched $320 in October and $300 in November.
According to Barrons, U.S. steel bosses are nervous that south
Korean-based Pohang Iron & Steel Co., the second-largest
producer of steel in the world, will undercut their products
because of the currency devaluation.
Bosses at The Boeing Co. are having nightmares that some
orders may be canceled if the currency turmoil deepens. Nearly
one-third of the company's backlog of orders are from Asian
airlines. The Thai Air Force is seeking to delay purchase of
eight Boeing F/A-18 warplanes worth $392 million. The
government decided against scrapping the deal altogether
because of a $250 million "termination penalty" demanded by
U.S. aerospace giant.
The drop in value of the south Korean won has stiffened
pressures on the Big Three U.S. automakers, making their
imports more expensive to purchase. Last month, Ford,
Chrysler, and General Motors sold a total of 268 vehicles in
south Korea, their worst sales in a year.
Meanwhile, with a stagnant domestic market and a weak yen,
"Japanese carmakers are expected to focus on the U.S. and
European markets," to boost their profits, the Financial Times
reported January 6.
Nationalist debate over IMF funds
Ultrarightist politician Patrick Buchanan continues to
seize on the economic crisis in Asia to push his demagogic,
nationalist appeal in defense of "American workers." In a
syndicated column published December 31, he asked, "How can a
White House that just OK'd $125 billion in U.S. tax dollars
and IMF bailout money to protect Korean banks and Wall Street
investors deny protection to American workers?" Buchanan
declared, "A clamor for protection is going to hit Congress."
Economic nationalism is also the theme of the debate
unfolding in the U.S. Congress over proposed additional
funding to the IMF. Rep. Lauch Faircloth, a right-wing
Republican, has reportedly teamed with the social democrat
Rep. Bernard Sanders to oppose the Clinton administration's
requests for extra IMF funds. Sanders hinted he would vote for
the IMF funding if the imperialist financial institution
agrees to provisions that supposedly includes "workers' rights
provisions" in its "rescue" programs.
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