'Bailouts' Fail To Halt Crisis In Asia: Imperialists can't collect loan payments as workers protest austerity measures

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 Asia.

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 veiled threat.

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, and Indonesia.

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 Korea."

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 defaults.

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 dictatorships.

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 31.

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 rally.

About one week later, Kim announced January 5 that he aimed to speed up laws permitting job cuts at failing financial institutions.

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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