Date: Wed, 16 Dec 1998 15:39:21 -0500
From: Robert Weissman <email@example.com>
To: Multiple recipients of list STOP-IMF <firstname.lastname@example.org>
Subject: WSJ:IMF's Asian Bailout Could Open Markets for the Tobacco Giants
IMF's Asian Bailout Could Open Markets for the Tobacco Giants
By Suein L. Hwang and Michael M. Phillips, Wall Street Journal
Wednesday 16 December 1998
A fight is breaking out over the Asian economic bailout effort because
it is having a controversial side effect: helping open markets in South
Korea and Thailand to global tobacco giants.
The International Monetary Fund swept in last year to bail out the
struggling economies of those countries. As a condition of its emergency
assistance, the IMF is seeking the privatization of state-owned
companies in various industries, including tobacco. That stands to open
the lucrative South Korean and Thai cigarette markets to Philip Morris
Cos. and other rivals.
Now the IMF's policy is drawing fire from Congress. Last week, 17
legislators penned a strongly worded protest to the IMF Managing
Director Michel Camdessus.
"Whatever the merits of privatization of other sectors of the economy,
tobacco represents a grave public health menace that must be treated
differently," said their Dec. 8 letter. Signatories included Sen.
Richard J. Durbin (D., Ill.), Sen. Frank R. Lautenberg (D., N.J.) and
Rep. James V. Hansen (R., Utah).
No Specific Policy
IMF officials say they have no specific policy on tobacco, adding that
the moves are simply part of its larger effort to encourage economic
reform. "Privatization of state industries is wholly consistent with IMF
efforts to promote sound fiscal management," says spokesman William
Murray. "If that means privatizing tobacco companies, or any other
industry that is likely to be more effectively operated in private
hands, I don't see why the IMF would object."
In its agreement with the IMF, South Korea promised to privatize its
South Korea Tobacco Ginseng Corp. and five other government-owned
companies by 2002. And in an Aug. 25 letter to Mr. Camdessus, Thai
authorities committed to complete a study "outlining strategic options
for Tobacco Monopoly" by the first quarter of 1999. They also agreed to
sell stakes in Esso Thailand PLC, Thai Airways and many other companies.
Amid economic turmoil, selling even a partial stake in a tobacco
monopoly is an easy way for a cash-strapped government to quickly
generate needed funds. In anticipation, the world's largest cigarette
makers are jockeying to position themselves for a possible deal.
In the past few months, British American Tobacco PLC and RJR Nabisco
Holdings Corp.'s Reynolds unit say, they have made overtures to South
Korean officials. Philip Morris declined to comment about its activities
in South Korea. But, this past summer, Philip Morris Chief Executive
Geoffrey Bible attended a posh ceremony at New York's Waldorf Astoria
hotel honoring South Korean President Kim Dae Jung. Then in October, Mr.
Bible flew to South Korea and expressed interest in a strategic
partnership with the country's tobacco monopoly.
South Korea is a plum market. It is a nation of heavy smokers who light
up more than 100 billion cigarettes a year, making it one of the 10
largest tobacco markets in the world. In Thailand, people smoke roughly
50 billion cigarettes annually. (The number is nearly 500 billion in the
International markets are becoming more important to cigarette makers as
long-term prospects in the U.S. grow increasingly dim. Although U.S. and
other multinational tobacco companies have sold cigarettes in South
Korea and Thailand for several years, they have been no match for
state-owned operations that control distribution around the country.
Philip Morris, British American and Reynolds collectively share barely
8% of the cigarette market in South Korea and less than half that
percentage in Thailand, says Salomon Smith Barney analyst Martin
Feldman. South Korea's tobacco and ginseng enterprise, which employs
roughly 6,000 people, controls almost 90% of its market.
Some public-health officials say the IMF's failure to exclude tobacco
companies from broad privatization plans could result in increased
cigarette sales. That is because state-owned tobacco companies, sluggish
and unchallenged, do little to promote market growth. Like other
state-run monopolies around the world, cigarette companies in South
Korea and Thailand churn out poorly made cigarettes that bear little
resemblance to the carefully engineered, smooth-tasting foreign brands
like Marlboro or Camel.
"If you change from a nonconfrontational, inefficient government
monopoly to a transnational company, it invariably leads to an increase
in tobacco consumption," says Judith Mackay, an antitobacco activist
based in Hong Kong. Turkey, for example, has become one of the
fastest-growing cigarette markets in the world since its government
abolished price controls that had propped up the former state-run
The IMF and the cigarette companies strongly deny that the privatization
of state-owned tobacco enterprises leads to increases in cigarette
consumption. Peter S. Heller, deputy director of the IMF's fiscal
affairs department, suggests that removing foreign governments from the
tobacco business might actually increase their willingness to regulate
tobacco use, advertising and promotion.
"Privatization might free the government to be much more aggressive" in
regulating tobacco, he says. Mr. Heller also notes that the IMF often
urges governments to raise tobacco excise taxes to boost government
revenues, a step that may also help reduce smoking levels. Korea's
IMF-approved government budget, for example, includes a new 10%
value-added tax on tobacco.
Although South Korea is the larger market, health activists are
particularly worried about privatization in Thailand, which has some of
the strictest antismoking laws in the world. Thai public health groups
successfully lobbied for a complete tobacco advertising ban. And last
month, Thailand made headlines when it required all cigarette packs to
include a warning that smoking can cause impotence.
Public health officials in Thailand say privatization of the tobacco
monopoly will inevitably erode their efforts. "When the transnationals
set up their base, they can bring in a lot of money to buy influence,
buy politicians, buy social leaders in every level of society," says
Hatai Chitanondh, who is president of the Thailand Health Promotion
"Our entrance in a foreign market, whether by exports or direct
investment, does nothing to inhibit a government's ability to legislate
over any aspect of our business," Philip Morris says in a statement. "In
fact, by permitting international competition and eliminating
state-controlled tobacco monopolies, the previous conflict of interest
between the sale and regulation of cigarettes by a state enterprise is
eliminated." The company also says that overall cigarette consumption
dropped in the Czech Republic after Philip Morris acquired the
state-owned monopoly there.
The IMF itself has operated in Asia for decades, but its lending
ballooned there after the financial crisis erupted in Thailand last
year. In August 1997, the IMF approved a $4 billion contribution to
Thailand's $17 billion international rescue package. Then last December,
as the crisis spread, the IMF agreed to lend about $20 billion to South
Korea. In return for its loans, the IMF generally requires recipients to
comply with a number of agreed-to economic reforms.
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9:18 AM on 12/16/98