(continued...)
------------------------------------------------------------------------
Strong Economic Medicine
^^^^^^^^^^^^^^^^^^^^^^^^
Since the 1994-95 Mexican crisis, the IMF has played a crucial role in
shaping the "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 low levels".17
Deregulating Capital Movements
The international rules regulating the movements of money and capital
(across international borders) contribute to shaping the "financial
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 "hot" and "dirty" 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 "making the 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 standard "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 achieved ("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 international law.
Creating a Global Financial Watchdog
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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
"Financial Watchdog-a so-called "Private Sector Advisory Council"-with 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 concrete "steps to strengthen private sector involvement"
in crisis management-what might be interpreted as a "power sharing
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 effort"25
NOTES
^^^^^
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.
4. See "Society under Threat- Soros", The Guardian, London, 31 October
1997.
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, "Vulture speculators", Our
World, No.
197, Kawasaki, 12 August 1998.
7. Nicola Bullard, Walden Bello and Kamal Malhotra, "Taming the 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.
18. "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 "capital account 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 this
purpose "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.
Michel Chossudovsky
Department of Economics,
University of Ottawa,
Ottawa, K1N6N5
Voice box: 1-613-562-5800, ext. 1415
Fax: 1-514-425-6224
E-Mail: chossudovsky@sprint.ca
Alternative fax: 1-613-562-5999
------------------------------------------------------------------------
a political discussion forum - cj@cyberjournal.org
To subscribe, send any message to cj-subscribe@cyberjournal.org
A public service of Citizens for a Democratic Renaissance
(mailto:cdr@cyberjournal.org http://cyberjournal.org)
----------------------------------------------------------
Non-commercial reposting is hereby approved,
but please include the sig up through this paragraph
and retain any internal credits and copyright notices.
.---------------------------------------------------------
To subscribe to our activists list, send any message to:
renaissance-network-subscribe@cyberjournal.org
Help create the Movement for a Democratic Rensaissance
----------------------------------------------
A community will evolve only when
the people control their means of communication.
-- Frantz Fanon