Magazine Issue 7 - Spring 1998
Tigers in Distress: A quick guide to the Asian Economic Crisis - By Mark Lynas

To even begin to understand the Asian crisis, you've got to strip away the financial jargon and get back to basics. First we need to remember that money is not intrinsically wealth - it is simply a socially-accepted way of conducting exchange. It's not as if you can eat it - on its own it is worth nothing. Money only takes on meaning when you can exchange it for real value - food, clothes, goods and services.

According to the economist David Korten, finance capitalism has "broken the link" between the creation of money and the creation of real wealth. Take stock markets fi)r example. Officially they create wealth by allowing companies to sell shares in the businesses that they're setting up or expanding. In actual fact this is a myth: only 4% of US stock transactions are new issues by companies to raise capital - companies prefer to borrow from banks or re-invest their own profits. The rest is gambling money in an international casino. If the total value of the stock market is rising, money is constantly being generated, irrespective of the real state of the underlying economy. The system is based on expectations and perceived reality, not reality itself. This is what happened in Asia.

In Thailand for example. foreign finance poured in, even as manufacturing
was stagnant and agriculture imploded. But financiers tricked each other into thinking that the economy was booming, and the pyramid scheme kept growing.

These financiers also tricked the Thai people into spending their plentiful supplies of money (not wealth) on foreign imports. Likewise, Thai corporations borrowed money from banks at rates of interest that they would only be able to repay if the economy kept on booming.

The financiers - obsessed with investing in the Asian Tiger economies - threw money at anything, especially real estate: so the value of land rocketed too. Meanwhile real wealth was taking a battering. Workers saw few increased earnings as those at the top of the money tree got fat.

Thailand's forests were trashed, as rapacious corporations clearcut valuable tropical hardwoods. To save the last remnants of the jungle, the Thai government slapped a ban on logging - but the hardwood companies simply skipped over theborder and started felling in Cambodia.

In Indonesia, this corporate juggernaut led to one of the biggest ecological catastrophes of the twentieth century.

Thousands of square kilometres of rainforest in Borneo and Sumatra went up in smoke when a combination of severe drought and the destructive activities of nearly 200 logging and plantation companies coincided.

Much of South-East Asia was wreathed in smog for weeks, but since many of the companies are controlled by President Suharto's good friend and golfing partner Bob Rassan, the Indonesian government denied the extent of the disaster.

In a sense you can't blame the corporations for a system that thrives on greed as positive feedback. They're on the same financial treadmill. Any company whose share price falls is liable to suffer a takeover bid, and its chairman may face the axe. In order to keep their share prices high, they must make large profits. In order to make large profits, they must externalise their costs- making society pay the price by underpaying workers, using up scarce natural resources, polluting the environment and by corrupting governments.

Then the bubble burst. Realising just how seriously in debt the Thai economy was, traders lost confidence as quickly as they had gained it. and capital flooded out of the country. As everyone desperately converted any liquid assets back into dollars, the value of currencies such as the Indonesian rupiah plummeted.

The Indonesian government, which like most Asian governments had pegged its currency to the dollar, tried desperately to prop up its price by selling dollars and buying rnpiahs. But it soon ran short of foreign exchange and eventually had to give up.

The Malaysian government, fuming at its loss of control, tried to blame financier George Soros - calling him a moron Soros hit back, labeling Prime Minister Mahathir Mohammed a "menace to his country". The IME stepped in, offering big loans to governments - but at the price of massive adjustments, and cuts in public spending.

Asian companies and banks found themselves crippled by dollar debts which they could no longer affbrd to service. In South Korea companies fired workers by the thousands, and trade unions were forced to agree to the first mass layoffs for decades (see CW p.14). Meanwhile the global economy continued to wreak havoc on ordinary people. Taxpayers had to pay as governments bailed out bankrupt banks, and as the value of the Indonesian rupiah dropped through the floor. the price of imported goods (which must be bought in dollars or many more rnpiahs) rocketed. Riots broke out in many parts of Indonesia, as people blamed Chinese traders for the sudden rise in the cost of basic necessities.

If there is a silver lining to this dark cloud, it is that the environmental devastation brought on by the boom has slowed dramatically. For example, the Malaysian government has had to put its massively destructive Bakun Dam project on hold. Western arms sales to repressive Asian regimes have also declined dramatically, and the IMF is forcing the Indonesian government to cancel several massive building projects and automobile plants. In addition, the voices of ordinary people are beginning to be heard in Indonesia - where the power of the dictatorial President Suharto is looking shakier by the day. There is hope also that the Asian economic crash will teach millions of people the valuable lesson that allowing governments and corporations to bet their daily bread and butter on the impulses of the casino economy will eventually lead to social dislocation and ~nvironmental crisis.

More information: The Financial Casino and Corporate Rule, David Korten, from www.corpwatch.org (Corporate Watch US)