On 15 July the Foreign Operations Appropriations Sub-Committee approved $3.4 billion in New Arrangements to Borrow (NAB) which will go into a special fund to help the apparently cash-strapped IMF deal with future crises. The additional $14.5 billion approved by the Senate and heavily backed by the Clinton administration was voted down by the Sub-Committee.

Just one week later the bill was shuffled off to the full appropriations committee where it was put on hold until September. Although some see this as a strategic move for the IMF-backers to gather their troops in the next weeks, others say that deferring the vote is a sign of just how sensitive the issue has become, and what it represents.

Opposition to the $18 billion package – already endorsed by the White House – has come from radical free market Republicans and the liberal left.

The right say the IMF stands in the way of the market, and like the UN and other pervasive international organisations, undermines US sovereignty. They are also tough on transparency, and are pressing for the IMF to release information such as Executive Board minutes.

Opposition from the left takes in broader sweep of issues, including lack of transparency and accountability, the social and environmental impact of IMF programmes, the extent to which the Fund promotes the interests of its major shareholders and the neo-liberal policy mix pushed by the Fund. Others argue that the Fund has overstepped its mandate to such an extent and with such devastating effects, that it must be radically reformed, if not removed.

In the great sweeping middle ground are those who believe that US interests, to say nothing of global economic and financial stability, is dependant on the Fund having enough money to do its job – the problem is that a whole lot of people think it’s doing a bad job! Yet, lobbyists for farmers and business are working overtime to convince the stray sheep of Congress that the US risks not only losing a useful leverage point for international trade and investment liberalisation, but that a further deterioration of the Asian economies will have a devastating impact on US interests both domestically and abroad.

Meanwhile, the potentially formidable coalition of left and right (who last year stripped Clinton of his hitherto automatic entitlement to ‘fast-track’ US trade policy) is holding together, although a few Democrats defected early in the year persuaded to show a united front with Clinton to assure a Democrat victory in the November vote.

The coalition base is also broadening in reaction to wording in the present bill which requires borrowers to “liberalise restrictions on trade in goods and services and on investment, at a minimum consistent with the terms of all international trade agreements of which the borrowing country is a signatory”.
According to the Washington-based Public Citizen Global Trade Watch, “the adoption of this policy in the context of the IMF would undercut some of the progress that citizens in the US and around the world have made recently in rejecting fast track negotiating authority; stalling the Multilateral Agreement on Investment (MAI); and raising awareness on the World Trade Organisation”.

In addition the present bill requires borrowing countries to cut subsidies and government lending programmes, and for foreign and domestic creditors and debtors to be treated equally. This last point could win support from IMF critics who argue that the Fund promotes moral hazard by providing a bail-out for the banks. It seems unlikely, though, that the intention of the IMF bill as presently drafted is intended to sanitise the public from the spillover of the private sector’s bad decisions. More likely it is intended to ensure that ‘foreign’ debtors don’t get off the hook.

Bill could go through the back-door If the bill gets past the Appropriations Committee in September it could go one of two ways: either directly to the Congress where it is likely to face a barrage of amendments, if the Rules Committee adopts an ‘open rule’ which would allow consideration of individual amendments. Some likely candidates include linking IMF funding to environment, debt relief, transparency and institutional reform, opposing capital account liberalisation, requiring banks to ‘take a hit’, and winding-back the IMF to its original mandate. Road blocks designed to slow the bill, and improve the IMF should they through.

Or, the bill could go straight to ‘conference’ – the place where bills go when there is disagreement between the Senate and the House. And this is where the debate could be lost. Whatever emerges from Conference has to be voted up or down, as a full package with no amendments. This would allow the ‘conference’ to include the IMF funding as part of an omnibus bill containing other, vital funding items.

Meanwhile, the list of individuals and institutions calling for reform, reversal or, at the least, caution in IMF policy prescriptions continues to grow.

Analysts with giant US-based investment bank Merrill Lynch say that the “IMF was slow to understand the market dynamics of the Asian crisis and recommended raising interest rates as a way to stabilise currencies. This exacerbated and hastened the collapse of the real sector, without supplying much in the way of stability to the currency.” (Bangkok Post, 25 June 1998).

Robert Wade, political economy professor at Brown University (US) says the Fund’s interest rate policies and insistence on banks meeting Basle standards “is the immediate cause of the wave of insolvency, unemployment and contraction that continues to ricochet around the region and beyond.” (Bangkok Post, 26 June 1998).

Privately, foreign bankers in the region agree that the Basle capital adequacy standards should be phased in over a longer time to ease the liquidity crunch. A representative of the Asian Development Bank, speaking after IMF Asia-Pacific Director Hubert Neiss’ press conference in Jakarta on 30 May 1998, commented that the ADB and the World Bank disagree with the Funds interest rate policy and will be taking a ‘united stand’ on this issue.

Even the impeccable Institute of International Finance – whose members comprise more than 285 of the world’s largest financial institutions – has publicly noted, in their 8 April 1998 policy letter to Minister Maystadt, Chairman of the IMF Interim Committee, that “We [the IIF] believe that private investors and lenders should absorb losses commensurate with the risks they take. They should not look to official financing to mitigate losses or escape the consequences of their actions.”

On capital account liberalisation, they urge caution:
“A year ago the Interim Committee agreed to amend the IMF’s articles to require all members to liberalise controls on capital movements. The private financial community supports the prudent and progressive liberalisation of capital account transactions but it is clear now that liberalisation should be approached with care and complemented by steps to strengthen domestic financial systems.”
The letter continues “the case has not yet been made that an amendment to the IMF Articles is necessary.”

In a letter to the same committee in the lead-up to the IMF and World Bank Annual Meetings of 1997, addressing the same issue of capital account liberalisation, the IIF “encourages the Interim Committee to initiate public discussions of the full range of issues involved before its next spring meeting.”
Sound advice, but then again, it seems that the IMF is not very good at listening to sound advice, even from friends.

Nicola Bullard is a senior associate of Focus on the Global South, and was the author, with Walden Bello and Kamal Malhotra of the report ‘Taming the Tigers: The IMF and the Asian Crisis’. Please contact Focus if you would like a copy of this report.

It is beyond the scope of this article to analyze the history of the economic crisis nor to assess what it the impact of IMF structural adjustment programme (SAP) on Thai society as this is perhaps already being done by many academic and “economist experts” elsewhere. I would rather focus, from a NGO’s perspective, the discussion on the impact on local people, especially the poor.

The economic recession began to take place since middle of 1996 but it was covered up by government measures through financing and subsidizing the declining business, most of which are speculative sector such as stock exchange and real estate development. The really first hit came with the rapid fall of stock exchange since middle of 1997 followed by the devaluation of Thai currency (Baht). The immediate impacts was all foreign debt and import of goods which must be paid in foreign currencies double their prices. Many business were close down while imported essential goods, especially petroleum and plastic, suddenly become expensive. So, the first squeeze was the a large scale lay-off and inflation. Those small business who mange to survive the first stroke must cut down expenditure and improve their internal efficiency, exploiting more from their workers. However, the raise of interests by the government in order to attract foreign capital dries out any possible for domestic borrowing which created cash shortage among private sector. Therefore, it is just a matter of time when all the companies to close down their business. This would of course further contribute to a massive unemployment problem. However, the collapse of the Thai business would allow foreign companies to come in and cheaply buy up all assets and take a firm control of the Thai economy.

This is particularly true when consider the IMF’s bail-out programme which pressure the Thai government to amend the law to allow foreigners to buy and own 100% companies and real estate in the country. With the neo-colonical mentality of the government (who believe that the only way to save the Thai economy is to accept IMF’s SAP and attract foreign capital), many people in Thailand are convinced that we could reach this scenario within the next couple month.

For rural sector, as many as 2 million people is expected to loss their job by this year (official figures from the Ministry of Labour), these unemployed would have little choice but to return to their home village in the countryside. But because the rural sector has long been neglected by the government’s development programme and there exists very little infrastructure to absorb these sudden flood of labour, the possibility for these returned workers to find any productive work is very dim. In fact, there is already many report that crime has increased in the rural areas. Farmers must guard against their storage house fearing of theft to steel the paddy at night, a phenomenon never occurs in Thailand before as steeling of paddy is considered the worst sin in Thai-Buddhist culture.

For agriculture which is now being seen as the saver of the country (through export of agricultural products to raise foreign currency for the country), the prospect is not so bright either. Although the ratio of foreign dependency of Thai agriculture is around 15-20% (every 100 baht export require 15-20 baht imported inputs, excluding petrol costs), these input are very crucial to maintain the productivity of the export crops, i.e. seeds, fertilizer and pesticides. The prices of imported inputs would become very expensive beyond the reach of small-scale farmers due to the Baht depreciation and may even become shortage. Export-oriented farms are so much dependent on these inputs would suffer from low productivity. And if this is coupled by the drought (due to El Nino effect), the agricultural production would reduce to an unprecedented level. With the drive to export, there could even be a serious food shortage/food insecurity in Thailand.
The worst is therefore yet to come.
So, unless there is a shift of government policies or an emergence of strong civil movement to embark on alternative development, Thailand could be heading to social tension as serious as the chaos in Indonesian now.

KUALA LUMPUR, (Reuters) - Ahmad Mohamed Qali is staring Asia’s economic future in the face and does not like what he sees.

“I came from far away to work,” the 35-year-old Iranian civil engineer says at a dusty construction site in the heart of Malaysia’s capital. “Then suddenly the ringgit (currency) crashed and everybody said there would be no jobs. So I’m worried.”

Asia’s economic crisis, so far played out largely in boardrooms and policymakers’ offices, has a much larger human dimension that has only begun to take shape.

At least two million Asians will lose their jobs, according to JobStreet, a private employment agency in Kuala Lumpur.
Hundreds of thousands of the jobless will be foreigners — workers who migrated to Asia’s booming capitals during the go-go years but who now, in many cases, face large-scale deportation.

“Inevitably there is going to be high unemployment, particularly in construction,” said Irene Fernandez, a spokeswoman for Tenaganita, a non-governmental organisation in Malaysia devoted to women workers’ issues.

THREE MILLION JOBLESS IN INDONESIA

Most of the layoffs are yet to come. But the effects of the downturn are already being felt in Indonesia and Thailand.
At least one million workers in Indonesia are expected to lose their jobs this year, pushing the number of unemployed to three million, Jakarta’s Manpower Ministry said last week.

About 70,000 foreign workers are registered in Indonesia but experts believe many more are there illegally.
In Thailand, the government has announced that the 221,460 registered foreign workers will be sent home when their term expires in June. The number includes 198,200 from Myanmar (Burma), 18,112 from Cambodia and 7,905 from Laos.
These do not include about one million others who work illegally in Thailand, mainly in the fishery and agriculture sectors and as servants.

Large numbers of Thais are working elsewhere in Southeast Asia. The government estimates there are 100,916 in Taiwan, 17,770 in Singapore, 17,671 in Brunei, 10,099 in Japan, 8,860 in Malaysia, 3,960 in Hong Kong and 1,456 in South Korea.

MALAYSIA BACKTRACKS ON DEPORTATION THREAT

Malaysian Deputy Home Minister Tajol Rosli Ghazali touched off a controversy last month when he said one million foreign workers would be sent home. Short of labour for a decade, Malaysia stopped recruiting foreign workers last August.
Only 1.2 million of the estimated two million foreign workers are registered with the Immigration Department, and their work permits expire in August. Most are Indonesian.

The deputy minister’s statement raised eyebrows around the region, especially in Indonesia where hundreds of thousands of returning citizens would only exacerbate its own unemployment woes.

“Malaysia can cope with the problem,” Indonesia Embassy spokesman Achmad Nawawi Hasbi said. “If they went home, it would add to the unemployment problem.”

Kuala Lumpur has since backtracked and said it hopes to shift most of the foreign workers from hard-hit sectors such as construction and hotels to oil palm plantations and factories.

“We are not going to expel them really,” Prime Minister Mahathir Mohamad said after meeting Indonesian President Suharto last month. “We are doing our best to inform them of the situation and then transfer them to plantation areas.”
“I’m not worried,” said Benjie Cubol, a 38-year-old Filipino engineer in Kuala Lumpur. “One million can’t be sent home.”

WHAT TO DO WITH JOBLESS FOREIGNERS?

But Tenaganita’s Fernandez is not so optimistic. “I see a worsening situation in July when the work permits expire, when visible layoffs will be seen,” she said.

Fernandez said the government was in a bind — whether to detain unemployed immigrants after their work permits expire, or send them home.

“The Indonesians are not going to go back. The situation there is worsening and very tense. Here it’s better. The question is, how are we going to contain them? We can’t just put them out to sea.”

PHILIPPINES CALLS STRATEGY SESSION

More than 30,000 Filipinos working abroad could lose their jobs due to the crisis, said the Philippines presidential palace. The palace has said it will hold a high-level meeting to map strategy.

South Korea is expecting about one million jobless in March. Among the measures it is contemplating: gradually cutting the foreign workforce from its current level of 270,000.

Singapore counts some 450,000 foreign work permit holders, about 20 percent of the workforce. The migrant workers are largely from Malaysia, Thailand, Indonesia, India, Myanmar, the Philippines, Sri Lanka, Bangladesh and China.

Hong Kong only keeps track of foreign domestic helpers. Filipinas are the biggest expatriate working community, numbering 138,000. There are also 24,7000 Indonesians and 5,100 Thais working as maids.

STRONG TAKA DRAWS BACK BANGLADESHIS

One group of foreign workers who are more willing than others to go home are from Bangladesh, according to Fernandez.
The Bangladeshi taka has gained ground against many of the Southeast Asian currencies, cutting into repatriated earnings.
Fernandez said there were 800,000 Bangladeshis in Malaysia. Her group is negotiating with contractors, urging them to offer three months pay to Bangladeshis and then send them home.

“The Bangladeshis are going home for holidays and not coming back,” Qali said.

It is certainly a pleasure to be in Kuala Lumpur again attending this 12th Asia Pacific Roundtable and seeing so many old friends and colleagues. I have lost track of the number of times that I have visited the Malaysian capital over the past year. Not only is KL one of my favourite cities in Asia, but the trip here is quite pleasant. It usually takes me less time to get here than to travel from one part of Bangkok to another!

It is somewhat less of a pleasure to discuss the topic of this first plenary session, namely, the Currency Turmoil in Asia,” and the strategic impact of such turmoil. Nonetheless, I believe that discussion and consultation are essential if we are to learn from the lessons of the past in order to avoid the problems of the future.

Excellencies,

Ladies and Gentlemen,

I find it hard to believe that almost one year has passed since the onset of the current economic crisis in Asia. It all goes to show how time flies, even when you are not having fun.

In contemplating about the current economic crisis, I am reminded of the words of the late President John F. Kennedy, who once observed that the Chinese word for “crisis,” or weiji, when written in Chinese, is composed of two characters–one represents danger and the other represents opportunity. Indeed, the present crisis offers us both daunting challenges and favourable opportunities. There is, therefore, no alternative for us but to tackle the ensuing dangers head on and to make the most of the opportunities that are presented.

In this regard, I believe we should view the currency crisis as a unique opportunity to rebuild anew our economic and political foundations for the twenty-first century–an opportunity to examine ourh present economic and financial structure, develop new growth strategies, conduct necessary economic and political reforms, and bring our fiscal and monetary systems more in line with the demands of a globalized world. Painful as the process may be, the currency crisis has compelled the countries of Bast Asia to confront and tackle underlying weaknesses in our economic and financial sectors, and this can only bode well for the future.

One strategic impact of the currency crisis, as I can see it, is that it has brought home, with stark reality, the close-knitted interdependence of this globalized world. It is evident by now that the current crisis is not merely an “Asian crisis,” as most people initially viewed it, but a matter of common global concern. For in a world where economies are tightly interlinked, where information technology instantaneously brings events occurring in one corner of the earth to another, virtually no country can insulate itself from the impact of crises breaking out elsewhere, no matter how far away they may be.

The so-called “contagion effect” has demonstrated that no nation can consider itself immune from the pervasive influence of the global economy. It reminds me of what an English poet from the 17th Century once said:

No man is an island, entire of itself; every man is a piece of the continent, a part of the main…any man’s death diminishes me, because I am involved in mankind…

Therefore, it would be wise for countries to join together at an early stage of an economic outbreak in order to contain the malaise before it spreads to other countries and weakens the system as a whole.

Also of great strategic significance is the currency turmoil’s potential impact on ASEAN. Some political observers have already expressed concern about the implications which the crisis might have on the future strength and standing of ASEAN as a regional grouping as well as ASEAN’s ability to play a leading role in the international arena. Of particular concern is the fact that the crisis might force ASEAN governments to become so preoccupied with their domestic affairs that ASEAN diplomacy could lose its velocity. Or, quite possible, intra-ASEAN tensions and conflicts could flare up due to various pressures on our weakened financial and political infrastructures. From playing a leading role at the forefront of the region’s foreign policy initiatives, ASEAN, it is feared, might be relegated to a position “in the backwoods” of regional diplomatic undertakings. We cannot afford to let that happen to us as a group.

Throughout its thirty-year history, ASEAN has encountered more than its fair share of crises, both large and small, and has always managed to emerge even stronger than before. I have no reason to believe that this time will be any different, although ASEAN cannot be complacent and take this as a given.

In any case, as a direct result of the currency crisis, ASEAN once again stands at a watershed in its history, following crises of different natures in the mid-1970s and early 1980s. Hence, for ASEAN to overcome this latest threat to its viability as an organization, it is imperative for ASEAN to step up to the challenge, rally together, and reach within itself for the strength and resilience which have always been a hallmark of the grouping.

At this crucial juncture, I believe it is essential for ASEAN’s advanced member states to coordinate more closely their policies, especially on issues of trade and investment, finance and macro-economic policies, not only among themselves but also with outside regions. At the same time, the new members of ASEAN may find this an opportune moment to reassess their respective processes of economic and political development in the face of the rapid and far-reaching changes in the global arena.

In particular, it is vital for all the members of ASEAN to begin to “look inward” into the very psyche of the organization to determine what factors might serve to undermine our united voice and cause us to lose our diplomatic weight–the structure of our government; the transparency, or lack of it, in our economy; the issue of human rights; the issue of democracy? Indeed, what factors might serve to undermine our very existence and erode our standing as an anchor of stability in the region?

By the term “looking inward,” I do not mean, of course, that ASEAN should become an inward-looking organization, focusing only on itself at the exclusion of other countries and groupings. Now, more than ever, it is imperative for ASEAN to reach out and cooperate closely with our friends and partners in other regions of the world.

Political reform in Thailand, reformasi in Indonesia–would that be enough? How about the rest of the ASEAN member states? Can they afford to remain idle, unmoved, defiant against the forces of change sweeping across the region?
The currency crisis could also have a strategic impact in bringing about changes within ASEAN itself. Speaking as a former academic, who earnestly cares about ASEAN and its political future, I wish to pose the question to this academic forum whether the time has come for ASEAN to rethink its decades-old policy of non-interference in the internal affairs of member States. As previously mentioned, events during the past few years have underscored how closely interlinked are the destinies of countries around the world in this era of globalization. If events in one nation inevitably impact upon the affairs of another nation halfway around the globe, how much more immediate and pronounced the impact when it involves the members within ASEAN?

This is to say that ASEAN members perhaps no longer can afford to adopt a non-committal stance and avoid passing judgement on events in a member country, simply on the grounds of “non-interference.” To be sure, ASEAN’s respect for the sovereignty of fellow members is one reason why the grouping has come this far and enjoyed such longevity. However, if domestic events in one member’s territory impact adversely on another member’s internal affairs, not to mention regional peace and prosperity, much can be said in favour of ASEAN members playing a more proactive role. Consequently, it is obvious that ASEAN countries have an overriding interest in the internal affairs of its fellow members and may, on occasion, find it necessary to recommend” certain course of action on specific issues that affect us all, directly or indirectly. Or, to be explicit, we may need to make intra-ASEAN relations more dynamic, more engaged, and, yes, more constructive than before.

Another strategic impact of the economic meltdown is on our regional security framework. In response to the crisis, I believe that the ASEAN countries need to enhance their ability to work in tandem to protect and preserve the stability of our region, so that we can avoid the danger of over-reliance on third parties. A security forum like ARF is becoming more crucial in building confidence and transparency as well as in avoidance of misperceiving threats. We need to explore and remove the roots of distrust among us, the causes of internal conflicts and tension in our countries, be they of ethnic, economic, social or political nature.

In discussing the peace and stability of the region, it deserves to be noted that the nature of the security threat in the aftermath of the crisis is likely to change a little bit from the more traditional threats of the past. Rather than the danger of armed conflict or invasion, it can be expected that various transnational problems will come to the fore as the main threats to regional security. These include problems such as international migration; uncontrolled, illegal drugs; transnational crime; and the environment, some of which will be discussed during the next few days of this Roundtable.

Ambassador Nobuo Matsunaga mentioned the unfortunate situation in South Asia in his opening remarks. We, in Southeast Asia–Malaysia, in particular, who served as an initiator of the concept of a Zone of Peace, Freedom and Neutrality (ZOPFAN) and a Southeast Asian Nuclear Weapon-Free Zone (SEANWFZ)–we, in Southeast Asia are particularly concerned about and sensitive to developments in South Asia over the past two weeks. Next month, in the Philippines, ARF will take up and give serious consideration to this threat to our dreams and aspirations concerning SEANWFZ. We are disturbed by such developments at a time when we do not have the resources to spend more on defence matters. These are very disturbing developments indeed.

Excellencies, Ladies and Gentlemen,

Having focused on the strategic implications of the currency turmoil on ASEAN as a grouping, I now wish to turn to the strategic implications of the crisis on the balance of power in the region. In addition to ASEAN, there are a few countries who have a vital role to play in the economic future of Asia and the unravelling of this financial crisis. Of particular significance is the kind of leadership role which will be played by each.

The People’s Republic of China, for one, has emerged as a very responsible player in the midst of this economic turmoil, and this has raised China’s diplomatic profile to a great extent. Beijing’s actions thus far reflect the new-found confidence on the part of China in playing a more active and constructive role in the region. Other powers should welcome this increased assertiveness on the part of China rather than seeing it in any way as a threat to the region. What China needs now is encouragement, not suspicion.

As a major power in the Asia-Pacific, with a booming economy which so far has escaped the effects of the currency crisis, China will be looked upon to play a constructive and responsible role in maintaining economic equilibrium in the region. In this regard, the maintenance of currency stability in China itself becomes a critical factor in ensuring the stability of the other currencies in Asia, particularly those of the countries hardest hit by the crisis. Concern has been expressed that China might be tempted to devalue the yuan in response to the depreciations of the Southeast Asian currencies. Such a move would most certainly aggravate the Asian financial crisis and have a devastating impact on the Southeast Asian economies, not to mention that of Hong Kong. For this reason, the continued reassurances by Chinese leaders that Beijing will not resort to a currency devaluation have been universally welcomed, and China has been deservedly praised for her steady response and restraint in dealing with the crisis.

But China, too, has her limits. We, in Southeast Asia, have been experiencing the myth of Sisyphus, a Greek who had to roll a stone uphill. Each time that he almost reached the top, the stone fell and he had to start all over again. The current economic turmoil began in Thailand and spread to other countries. However, just when our economy was starting to stabilize, crises broke out in Korea and Indonesia and we have to face the same task as Sisyphus.

As the world’s second largest economy and the undisputed economic superpower in the region, Japan must undoubtedly play a central role in the resolution of the financial crisis. Since Japan is by far the region’s largest importer, exporter, investor and financier, the Japanese economy is like a lifeline for the rest of the region. Therefore, the strength or weakness of the Japanese economy will, to a large extent, determine the economic fortunes of Asia and the world at large.

For this reason, it is vital for Japan to play a leadership role in the crisis commensurate with its economic superpower status. In view of the country’s massive economy, Japan has the capacity to serve as the locomotive for economic recovery and sustained growth in the region. A strong and healthy Japanese economy would thus be one of the best remedies for the current financial malaise in Asia. It would provide a much-needed market to absorb exports from the rest of Asia. At the same time, it would enable vital Japanese investment outflows to proceed throughout the region. On the other hand, a Japan experiencing economic difficulties would portend a very dismal future, not only for the countries afflicted by the economic crisis, but for the global economy as a whole.

Hence, one of the most essential antidotes for the region is a prosperous and bustling Japanese economy. Consequently, it is paramount for the region that the Japanese Government do all it can to stimulate the Japanese economy and generate greater domestic demand. The successful stimulation of Japan’s economy would then serve as a powerful engine to propel other Asian economies forward, leading to economic recovery in the Asia-Pacific as a whole.

I have to say that, although Japan has done much for the Asian countries during the current crisis, we all expect Japan to do more. This includes solving her own financial crisis, increasing domestic demand, and opening up her markets for our products. Our market in Japan has actually shrunk at a time when it needs to expand. So, we expect Japan to do more, by way of regenerating her economy, opening up her market, and so forth.

Equally important to Asia’s economic recovery will be the role of countries geographically outside the region. In order to emerge from this financial crisis, Asia will need to pave its road towards recovery on the basis of export-led growth. With most of Asia entering into a period of recession or slow growth during the next few years, Asian hopes for overseas demand may have to rest on the advanced industrialized nations of the United States, Canada, and the European Union.

However, with most countries seeking to sell and few in a position to buy, difficult times are expected to lie ahead for the global economy in the midst of one of the most competitive environments in world history. Nonetheless, in the face of greater worldwide competition, the principle of free trade should be the predominant guiding light to steer countries through these troubled economic seas. Countries must remain committed to keeping their markets open and must resist any tendencies or pressures towards protectionism. Any such unilateral measures would only provoke retaliatory action that could touch off a chain of events leading to a worldwide recession.

Excellencies, Ladies and Gentlemen,

From my comments this morning, it is apparent that the road for all of us leading into the twenty-first century will not be strewn with roses, but is more likely to be full of thorns. Yet I am confident that, slowly but surely, we will succeed in seeing this crisis through.

Grim as our task may be, I am convinced there is no place for prophecies of doom conjured up by some analysts. While the current crisis is unmistakably severe, many of the economic fundamentals which have brought Asia this far remain strong and firmly in place.

Some have taken to belittling the so-called “Asian miracle” although this was a phrase coined by others, and not an accolade we bestowed upon ourselves. 0 Actually, as my Prime Minister stated in Hong Kong just two weeks ago, “We do not believe in miracles, just plain hard work.” Ladies and gentlemen, the miracle is no more. Perhaps it never existed. But what does exist and remain firmly entrenched is the Asian ethos of hard work, innovation and family values, in addition to a traditionally high savings rate and solid economic fundamentals. Such factors should serve as a valuable reservoir for the Asian nations to draw upon in riding out the current crisis.

For companies that have been forced into bankruptcy and individuals who have lost their jobs, it would seem preposterous to describe Asia’s economic crisis as a “blessing in disguise.” Yet years from now, after we have weathered this economic storm, I am convinced that we will look back upon present events as an important turning point in our rich history–a juncture in which the Asian countries seized the opportunity to make the necessary adjustments, which allowed them — all of us — to move into the twenty-first century on a more solid footing than ever before.

Thank you very much.

The question that I am asked to address is how an industrial juggernaut like South Korea–widely touted as the eleventh largest in the world–has ended up in the lap of the International Monetary Fund, and what this portends for an economic system that came to be known as Korea Inc. Rather than revisit the daily unfolding of the Korean financial debacle in the past few weeks, with which you all are familiar, I would rather like to use this occasion to discuss the political and historical logic of the Korean economic system, so that that we can better discern the parameters of current and future Korean (and American) action. When we do that, I think we may find that the IMF has bitten off a lot more than it may be able to chew, let alone digest.

We do not want for explanations of the Korean crisis. They have commonly ranged between „too little deregulation” and „too much deregulation,” along with assurances that the „fundamentals” of the Korean economy are sound, thus to calm jitters in the market. Mainstream economists have argued for years that the Koreans have not deregulated their financial systems enough, and although the current crisis does involve a lack of financial transparency, that has been true for decades in Korea. Others say that deregulation went too far, leading to reckless investment and lending in Southeast Asia. How can the degree of deregulation simultaneously be too much and too little, and how can economic fundamentals be said to be sound amid a massive financial collapse, requiring a $60 billion bailout? What is missing is the history and the international context of the Korean political economy.

The Korean economic system has always been intrinsically unstable, and therefore vulnerable to exactly the sort of financial calamity that has now befallen it. The only interesting question was when the other shoe was going to drop, revealing the instability of an obsolescent and increasingly corrupt system. To adumbrate my argument, the other shoe dropped when Washington and Tokyo refused to aid Korea bilaterally. One of the great cushions to the Korean economy was the Cold War, such that any serious economic crisis also invoked security concerns, or even transformed economic crises into crises of security. At any time before 1989, Seoul could expect Washington and Tokyo to step in and help it out bilaterally (with the best example being the crisis of the early 1980s). But that was then and this is now; it is far preferable for the United States today to rely on multilateralism to solve problems like this, with organizations like the International Monetary Fund in the lead. To understand this logic better, we need to recover some basic facts regarding Korea’s political economy.

Korea emerged from a half century of colonialism and war utterly destitute, as is well known, but during the Cold War it occupied a central divide and a prominent, exposed position between the superpowers. Parlaying its geopolitical position into economic advantage, the government amassed huge amounts of foreign aid in the 1950s and then later, foreign loans. The linchpin of the mechanism to promote economic growth, and at the same time to prop up the fledgling South Korean state, was its financial policy. The state allocated foreign capital (along with domestic savings) to rising industries and firms, who would produce almost entirely for the export market. Economic planners did this by fiat at first, by setting low financial prices (or even negative real rates, as was the case throughout the 1970s) and allocating credit through banks which were owned by the state. Thus, the banks in Korea were policy instruments of what may be called a „late industrialization,” emphasizing exports, and in the Korean instance, also the development of heavy industries related to security needs. This may not have been kosher for economists, but it was a strategy indulged by Washington for many years, because it both promoted South Korean security, and made the ROK a model of export-led development.

In the course of this development, the state created an impressive constellation of mammoth industrial firms, the chaebol, a group of can-do oligopolies with plenty of entreprenuerial spirit, great firms like Hyundai and Samsung that founded one new industry after another. In turn these firms provided political support for the ruling party, in the form of floodtides of cash passing between the industrialists and the politicians. For the chaebols this was their best insurance against default, since the state was always behind them. Additional insurance came from their sheer size and therefore their importance to the domestic economy; they were so big that they could be in what we political scientists call a „state of permanent receivership.” The big firms were always hugely leveraged, with very high debt-equity ratios, and because they usually had lower profit rates than small-sized firms, they always needed periodic infusions of new cash.

Memories can be very short in the media: in the current coverage of the IMF bailout I saw hardly any reference to last year’s Korean news, which involved the cashiering of two previous presidents for truly mind-boggling levels of corruption, owing to the very system I am talking about: politicians and political parties collecting huge amount of money from the chaebol, and offering in return loan guarantees to sustain these cash strapped firms. The inquiries into the slush fund scandals proved that one former president, Chun Doo Hwan, got more than $900 million, and the other, Roh Tae Woo, about $600 million. These recent cases were certainly revelatory to the Korean people of the operational method of patronage in Korea Inc., and now we should not forget them. Korea, Inc. was far more arbitrary than Japan Inc.: in the 1980s, a racketeering state became the flip side of the benign developmental state (the earlier, more systematic pattern of chaebol support for the ruling groups became in the 1980s a kind of mad extortionism, especially in Chun’s case).

Now it is true that since the early 1980s Korea worked hard on financial liberalization, privatizing banks, internationalizing financial markets, de-regulating financial prices, and developing equity markets as alternatives to bank loans. But the habits of state interference died hard and in some cases got revived; thus the vulnerability of the financial system persisted. Remarkably, the chaebols today remain as leveraged as they were in 1969 when Korea experienced its first major debt-crisis, or in the 1970s when they were hungry recipients of the so-called „policy loans” which, given high inflation, were outright subsidies. The problem of non-performing loans has not abated, either, but remained more or less steady for the past thirty years. My random inquiry shows that in 1983, in the midst of recession and three years of poor export performance, the percentage of non-performing loans in the banking sector was estimated to be 14 percent of total loans—about the same as what it is today. In other words, sixteen years of financial liberalization—slow, steady, tortuous—has brought about much change in the financial sector, but did not eliminate the vulnerability of the Korean financial system. It is an odd outcome when you think about it: the whole purpose of the financial liberalization had been precisely to prevent a financial collapse, the cost of which would then have to be socialized. But this is not hard to understand as an outcome of the peculiar political system that locks politicians and chaebol in an ungainly embrace.

Today there is no historical task more urgent than to cut this Gordian knot. President Kim Young Sam seemed to understand this clearly, and in fact made financial liberalization one of his priorities—with one major reform being the real-name system for bank deposits. But a thorough reform of the financial sector would have required extraordinary determination on the part of the state leadership, an exercise of power which could not be mustered by a democratic regime that also happened to be unpopular. So the regime stalled, unable and unwilling to overhaul the system that has given so much clout to the state, and unwilling to overrule the privileged chaebol. Neither could it overrule an increasingly strong labor movement, one that spilled out to the streets last January, opposing a new labor law that would have made layoffs easier. Then Kim Young Sam’s administration went catatonic in the face of a string of bankruptcies that also started in January, claiming six of Korea’s top thirty chaebol, but featuring the collapse of the Hanbo conglomerate, which unfolded a huge political scandal involving the president’s own son—and in an election year, no less.

The economic team that stayed in office for the first ten months of the year could do nothing, and therefore did nothing as the stock market dropped 20% and as the currency, the Korean won, fell by 17 %. It was able, however, to suppress with great alacrity a government think-tank report written in March arguing that Korea, with short-term debts over 30% of GDP and very low levels of foreign exchange reserves, was headed toward a repeat of the Mexican crisis of 1995. In other words the IMF today is doing for Korea what the government could not do in the preceding year: and the reason for the state’s inaction is precisely the imbrication of politics and finance.

In the halcyon days of the Cold War, the deviant nature of the Korean financial system (deviant from the standpoint of laissez-faire) was ignored or soft-pedalled. The United States always stood ready to help out in the event of trouble, slapping the Korean wrist now and then for maintaining market barriers and not liberalizing enough. During the economic debacle of 1979-1980, for instance, the United States acted swiftly to stabilize Korea, sending signals to the international financial community that Korea, the assassination of Park Chung Hee and the Kwangju rebellion notwithstanding, was a sound investment for more loans. More importantly, the United States exerted pressure on Japan to „share burdens” in bailing out a Korean regime then grappling with financial and other economic troubles, amid massive popular disaffection. The Reagan-Suzuki agreement stipulated in effect that the maintenance of peace on the Korean peninsula was important for the security of Japan, which meant that Japan would have to ante up. In the midst of economic crisis, then, the Korean government presented Japan with a stunning bill: $10 billion in aid and loans from Japan over a five-year period , to begin in 1982. When the back-and-forth negotiating was all over, Korea got from Japan $4 billion in government and EXIM loans. This was nearly 13 percent of Korea’s net external debt, more than 5% of the GNP, and almost a fifth of total investment in 1983. A comparable figure today (i.e., five per cent of GNP) would be approximately $25 billion—about half the size of the IMF bailout, according to news reports this week. The big difference is that when the Korean government called for bilateral help from the central banks of Japan and the United States two weeks ago, the refusal was swift and decisive.

Although the main reason for this change is the post-Cold War milieu in which the U.S. finds multilateralism more appropriate for the achievement of its goals (or the world’s goals, often said to be the same thing), it is important to note something entirely new in the Northeast Asian security situation, which is the developing bilateral relationship between the U.S. and North Korea. In the middle of the IMF bailout news, Pyongyang agreed to join four party talks to finally bring an end to the Korean War, and representatives of both sides held high-level bilateral meetings in Washington, reportedly toward the goal of exchanging diplomatic envoys. This new American diplomacy has not gone down well in Seoul, but it is another illustration of the post-Cold War distance that can be seen in Washington’s relationship with Seoul. More broadly, however, Washington has sought to move toward a multilateralism in East Asia and the Pacific that would somehow catch the region up with the historic alphabet-soup multilateralism of Europe—and thus the Clinton administration’s emphasis on APEC, ARF, and the use of diplomatic mechanisms to solve old Cold War problems (witness the October 1994 agreement freezing North Korea’s nuclear facility, and the four-power talks).

What will the IMF package do for the Korean political economy? Above all, it will attempt to do what the Kim Young Sam administration did not have the power to do: open up the financial nexus of Korea, Inc., raise taxes, push interest rates higher, and lower the planning estimates for Korea’s GDP growth in the near term of the next couple of years. It may also try to restructure the labor market by making layoffs and wage freezes easier: the one important thing that Kim Young Sam did try to do a year ago, with a new labor law. The result was massive labor unrest in the streets, approaching a general strike at times last January. Let us now look more deeply at each of these measures, at what amounts to several structural changes that Koreans have not had the will or the power to enact themselves.

The first and most important measure is financial liberalization. The IMF is already reported to have asked for a complete liberalization of the financial sector, making it possible, among other things, for a much higher degree of transparency and for foreign takeovers of Korean banks and other financial intermediaries. Maybe they will be successful, and maybe not; but from the historical perspective I outlined above, I will believe it only when I see it. In any case I believe that true reform here will be harder than anywhere else, because it challenges the very basis of Korean economic success since the 1960s.

The second question concerns the problems of market concentration and chaebol oligopoly. It is likely that the IMF will use the occasion of the current stabilization, placing the Korean government in a weak position, to reduce various forms of trade and investment barriers, running the gamut from tariffs on foreign cars and agricultural products to policies on government procurement and intellectual property rights. Already the government has opened the domestic bond market (there were few foreign takers), and most analysts assume that more market opening will be the price of IMF stabilization. Given past experience, we can expect much foot-dragging. It is unlikely, for example, that at a time of idle capacity in the automotive sector the domestic market will be flung open to foreign cars. As for reining in the chaebol, the stabilization in the early 1980s is a good guide: administrative measures in search of „industrial rationalization” led to forced mergers for the weaker firms and monetary infusions for those firms deemed competitive in world markets. It is also likely that the IMF will demand that foreign firms be allowed to take over failing firms.

It is not easy to gauge how successful any reorientation of the chaebol would be. On the one hand, these firms for years have wanted freedom from government regulation. On the other, they have not succeeded in breaking the umbilical cord of state financial support. Certainly the top handful of firms—Hyundai, Samsung, Daewoo for example—are world-class organizations, competitive in diverse industries around the world. The problem comes in with weaker firms like KIA and Hanbo, to take the two biggest examples of failure this year, and more generally with an economy that is grossly distorted by a small number of huge corporations.

By far the toughest question for Korean stabilization relates to labor, and this is where the experience of earlier stabilizations is of little help. Wage restraints and layoffs in the 1980s were an artifact of sheer political terror, a wholesale assault on unions that, by contrast, made even the worst years of Park Chung Hee’s rule appear like balmy days. In the particularly cantankerous year of 1980 the number of labor disputes recorded by the Ministry of Labor plummetted from 407 incidents to 186 the next year, and then to only 88 in 1982. Workers were massively laid off, more so in large enterprises than in small ones, thus giving the lie to the claim of paternalism in the chaebol companies.

Today Korean labor is highly organized, with a ten-year record of rapid mobilization. The number of strikes and other incidents that occurred after the Chun dictatorship collapsed in 1987 was the highest ever recorded in the world, and today strong unions exist among both blue-collar and white collar workers. This makes the situation quite different than in the early 1980s, compounded by the impending presidential election on December 19. A combination of strong organization and strong disincentives for layoffs means that the IMF will have to tread very carefully with Korean labor—and perhaps that is why no news has leaked out about what the stabilization package says about labor. If there is a widespread perception that labor is unfairly bearing the brunt of stabilization, we can expect widespread unrest. If on the other hand Korean workers perceive that everyone is getting their belts tightened, the chaebol groups above all, it is likely that residual patriotism and nationalism will lead labor to support the stabilization package. Since 1987 Korean labor has become sensitized to the need to ally themselves with the middle class if their demands are to succeed, so a fair and broad sharing of austerity will encourage both middle class professionals and industrial workers to fall in behind genuine reforms.

What I have argued, in short, is that the Korean political economy is another kind of leftover Cold War artifact, good for an era of security threats and close bilateral relations with Washington, but of questionable use in the global „world without borders” of the 1990s. At some point Koreans have to reckon with a highly-leveraged, highly political, manifestly corrupt nexus between the state and big business, one that nonetheless had propelled the Korean economy forward at world-beating rates of growth. Since they have been unable to reckon with this juggernaut themselves, they now rest their fate with the IMF. A multilateral body first formed in 1944, the IMF has always been influenced most by Americans. Washington and the IMF will now have to tread a fine line: one that restores the fundamentals of the Korean economy, does not alienate Korea’s strong labor movement and its increasingly active civil society, gets serious about change in the financial system and the reform of the chaebol, and to do all this at a time when sharp currency devaluations (the won is down 20% in the past four months) beggar Korea’s neighbors and cause corresponding competitive devaluations, raising the specter of massive trade deficits in the U.S.

When you stir this pot even more with a highly contested Korean election, just around the corner, you see that the IMF is walking a tightrope. It may succeed, and bail the ROK out of a stew of its own making. But it may also fall into that stew, with unknown consequences for an IMF that prides itself on always eschewing politics, but which also has its own, traditionally highly secret, considerations. In any case East Asia’s flying geese are now launching into an unknown future with an unexpected head goose: not Japan, the avatar of the Pacific Century, but the goose that Washington first launched at Bretton Woods: the International Monetary Fund.

The distress in the Asian economies may be bottoming out. The APEC meeting of 21 Pacific Rim nations has been held, and gone flat. Time now to look at economico-political matters in a way that configures phenomena before and beyond recent waves and troughs. Think from present incoherence toward future community.

I. ON MIRACLE AND DEBACLE
(a) Hello, Vasco da Gama. Before the year 1998 expires, let’s remember Vasco da Gama. 500 years ago he set sail, and succeeded where Cristoforo Colombo had failed, in discovering a new sea route from Europe around Africa to India, thence to Southeast Asia and China. We annually celebrate Christopher’s error. We ought to recognize a Vasco da Gama moment: the half millennium since North Atlantic powers began inexorably to tangle with South and East Asian ones. We have been connected ever since. Now it is timely to imagine Pacific community, rather than the economic torpor of President Clinton’s visit to Japan and Korea, or the exchange of barbs for pique launched by Vice President Gore and Secretary Albright with their Malaysian hosts. The news, as usual, is not inspiring. We need some history.

(b) The European Miracle. Any Asian miracle we have recently seen, or may see again, is derivative in part from the European miracle signified by the date 1498. Europe was able to project power through national competition with the materials they had in focus: military and nautical technology, and organizational concepts; management of time, space and resources. Europe put together a Roman alphabet and Arabic numerals and an empirico-scientific mode of thinking that carried it around the world.

China had printing and gunpowder and hydraulic engineering and imperial organization before or better than Europe and excellent ships, too. They sent Admiral Cheng Ho around India to Africa before Vasco da Gama. But he never discovered Europe. Why is there no Cheng Ho age in North Atlantic history? Because his motive was different from Vasco da Gama’s. He was loading up his ships with curiosities for his emperor’s court, such as “auspicious giraffes” from Africa. Sailing an ark of exotic tribute is not the same as exploring paths for capitalistic trade and investment.

The European miracle that exploded all over the world was a military-political-financial mode of organization, which once took the form of sovereign imperialism over other lands and peoples. We are the biggest and best organized descendant of that outburst. We grew first by revolution away from Europe; then by reinventing corporations, government and society to productive and creative ends. How should we now understand and reconceive relations with modern East Asia?

II. THE EAST ASIAN MIRACLE
(a) The Economic Phenomena. In 1993 the World Bank published a book entitled: “The East Asian Miracle.” The story was an apparently compelling one, of eight nations — Japan, Korea, Hong Kong, Singapore, Taiwan; Indonesia, Malaysia, Thailand. China, a ninth nation, was included by reference as having the same high growth rates, but excluded from analysis because of its non-comparable structure of economy. Since 1960 these countries had grown faster than all other regions of the world: more than twice as fast as the rest of East Asia, three times as fast as Latin America and South Asia, and twenty-five times faster than sub-Saharan Africa. And to strike home: more than twice as fast as the OECD economies, or the United States.

This was being achieved, furthermore, with declining income inequality and reduced poverty — in contrast to terrible and growing inequities in Latin America and elsewhere.

How was it being done? By “getting the basics right.” High domestic financial savings sustained high investment levels. Agriculture declined in relative importance while improving in productivity. Population growth rates declined more rapidly than anywhere else. Education policies focused on primary and secondary schools, generating rapid increases in labor force skills. All these economies were open to foreign ideas and technology. In most, the government practiced strategies of selective industry promotion. In Northeast Asia especially, the World Bank concluded that government interventions “resulted in higher and more equal growth than would otherwise have occurred.”

(b) Asian Values and American Delinquencies. Exaggerations of this story told us we would eventually be left in the dust. The case for “Asian values” also boomed and peaked around the same time.[1] “Study hard and obey your parents,” a Korean dictum, may suggest the spirit involved. Asians were confident they knew the way, and some began to suggest that the West was lost. Singapore got tired of our sniggering about their fines for leaving chewing gum on the streets, and asked us about ourselves (reasonably, I would say): Why are Americans not stamping out the sale of crack on our streets? The Prime Minister of Malaysia liked to remind us that in one generation our rate of violent crime had quadrupled, single parent families had tripled, and our number of state and federal prisoners had also tripled. East Asia was newly conscious of its own rich cultural, philosophical and social legacy. We were sometimes diagnosed as a drop-out, pill-popping, family-scrapping, obese society; victims of affluence and trash culture, symbolizing the survival of the fattest.

Perhaps some of these critiques should have been taken to heart. We could do a lot more to strengthen our society through family, school, and church, with a lot less emphasis on material accumulation and empty leisure. In any case, the stock market index, up or down, is the moral measure of no society, Atlantic or Pacific.

III. THE ASIAN DISEASE AND ITS CONTAGION
Less than a year and a half ago, the healthy Asian economic picture began rapidly to change. The unravelling of the Thai baht in mid-July 1997 triggered currency erosions and stock market crashes through most of the heralded eight nations. “Triggered,” because most of them were vulnerable through their own policies. The impact was severe. An approximate averaging of all these Asian economies suggests that an Asian asset worth 100 dollars in June 1997 was worth 25 dollars by September 1998. That loss of 75% compares with the US stock market crash of 1929 to 1932, when the S&P index decreased 87% (calculations by Charles Wolf, Jr., of RAND). Of this rapid and serious depreciation, the good news may be that most phenomena have now bottomed out. The sad news is that most of Asia is in a depression, which may yet affect the USA more than it has thus far.

For social texture, a few words about the worst case, Indonesia; the nastiest, Malaysia; the best case, Taiwan; and the biggest, Japan. Then a little guesswork about China — the greatest unknown.

(a) Indonesia. Indonesia, with a population of over 200 million, is the fourth largest country in the world. Of Muslim nations, largest of all, and maybe gentlest in its forms of Islam. But everything has come apart. First a major drought, then the rest. A year ago, I said to an Indonesian who worked in Jakarta for the World Bank, “The forests are in flame, the currency is burning up, and the stock market is melting down.” She added before I could draw breath, “And the people are on fire.” Only smoldering then, but her foresight was accurate.

Inflation has gone on to hit 80% in the first nine months of this year. Unemployment is perhaps 20 million and underemployment at least another 20 million. The poverty rate, which was once jiggered down to 11% (using a dollar a day income as the basis for the calculation), has now ballooned up to half the population, one hundred million people.
Malnutrition and dysentery are increasing. Yet hospitals report fewer patients because of higher costs. Diabetes and dialysis patients are at high risk. Those who can’t afford imported medicine are saying goodbye to their doctors. Old tubing is being rewashed for use in transfusions. The educational system, which has a structural dropout rate of three million students a year, now has an additional loss of three and a half million children a year for financial reasons. Valiant national and international programs have been defined, trying to sandbag the high seas.

In March this year, Soeharto — the “Father of Development” — engineered his seventh five-year term. In mid-May it ended after riot, rape, arson and murder at the nerve center, Jakarta. His surrogate son and VP, Habibie, is now in his place. The Parliament, mostly Soeharto and Habibie’s appointments, has just met in special session to pass twelve reform decrees. In the streets twenty thousand student protestors sustaining the reform mood faced thirty thousand army and police, augmented by a huge number of “volunteer civilian guards,” many of them jobless, enlisted for three meals and a dollar a day. The result was more riots, with sixteen dead and hundreds injured. Will Indonesia next May have, as passed by Parliament, its first free national election in 44 years? Can it establish an irreversible democratic momentum? Or will it revert to authoritarianism?

Any answer must be aware of what the official economists did not see, or grossly underweighed, in Indonesia’s “economic miracle”:
* Environmental mismanagement and waste which, if analyzed as cost, might have cut Indonesia’s alleged growth by a third or more.
* Trader psychology in most of Indonesia’s investors, which led to extremely short-term vision, and high debt to equity ratios–probably at least three to one in listed companies before the crash, and incalculably high in unlisted ones. Nearly 90% of listed companies are now insolvent.
* The problems of overexpanded business compounded by overextended borrowing and underregulated banking. World Bank praise of the 1988 bank reforms as immensely successful would be laughable if they had not been disastrous.
* An inverted pyramid of accumulation of wealth in Soeharto family, cronies, and associates. This did not make its way into Gini coefficients, which showed relative equity in national distribution of income. But it deeply penetrated the consciousness of the Indonesian people.
* Armed forces which had lost their professional focus by becoming involved in politics, bureaucracy, and corporations; an army which was in factional paralysis during the worst moments of rioting in May.
* A repressed popular consciousness that until now could not take shape in deliberate political will, but only in frustration, racial and religious tension, and outbreaks of violence.
* Decades of deliberate suppression of institution building. In post-1989 terms, with regard to pluralism or civil society, Indonesia is closer to Romania or Bulgaria than to Czechs, Poles, or Hungarians.

Indonesia, in short, has been mismanaged, repressed, exploited, and stifled in multiple ways. The human and natural resources that exist there are extraordinarily rich, and can over time generate a vibrant nation. The preconditions, however, are several: the operations of an open society, symbolized and beginning with free elections next May; chastened, disciplined, and regulated business and banking; a professionally focused armed forces with one mission (there being no external enemy), and that is public security; a decently paid civil service with one mission, public service; a thorough investigation of the recent pseudo-royal family’s sources of wealth, ensuring redistribution where appropriate to public means and ends, and the stripping of neo-feudal values from Indonesian leadership style.

Is this too much to ask? Not for a proud people capable of a great nation. Is this too much to expect in a short time? Yes. Give it a long time, then. Start counting now. The best sign — completely overlooked by our media — is that the four leaders most interested in these ideas met together for the first time in early November and issued a joint declaration. If their followers prevail among the dozens of new parties registering, and over Golkar, the Suharto succession party, then the chances are good for democratic coalition government, European style.

(b) Malaysia. Kuala Lumpur has the world’s tallest building, the Petronas Towers. But it also symbolizes a giant credit bubble. Malaysia’s declines in stock market and in currency units are second only to Indonesia’s. Still, its percentage of non-performing loans may be only half of Indonesia’s, and its net debt to equity ratio is actually a little better than Singapore’s. But in a new and unpleasant way Malaysia is politically terrorized by its own Prime Minister, Dr. Mahathir.
When his early statements on the financial crisis sent the Malaysian markets down three times, Mahathir’s Deputy Prime Minister and Finance Minister, Anwar Ibrahim, persuaded him to keep quiet for a while. Anwar is a liberal capitalist and internationalist who, in New York last spring, quoted, precisely and with effect, Shakespeare, T.S. Eliot, and Joseph Schumpeter. Perhaps he could have sustained such a style, even with a boss whose vision has been directed bifocally to Mecca and to Tokyo.

But Anwar recently made the mistake of challenging Mahathir, seventeen years in power, for the party leadership. Mahathir had him jailed. Anwar is now under trial for ten counts of corruption in office and sodomy. I asked a friend, twice a cabinet minister in Singapore, how many counts he believed susceptible to conviction. None on corruption, he replied, because they could backlash to the government. One or two on sodomy, perhaps. Why, if secret police evidence on that dates back four or five years, has Mahathir kept in office a man he now declares unfit as a sodomite? The answer, obviously, has to do with a raw power struggle — as attested by photographs of Anwar being led to court with a blackened eye. This injury was not given to him by his wife; she is an ophthalmologist.

Mahathir has decided to run his own country his own way, and has imposed strict controls on currency and stock market. Whether this man, who blamed George Soros and international Jewry for his country’s financial troubles, can prevail in semi-isolation, remains to be seen. Mahathir is not identical with Malaysia. Conjecture has strongly arisen whether he is worthy of continued power.

(c) Taiwan. Not everything is going to hell in Asia. Taiwan has had steadily positive GDP growth and is on track for nearly 5% in ‘98, while every other capitalist economy in the region, even Singapore, is headed for negative figures (Indonesia nearly 20%). Other Taiwanese data are strong too: high foreign exchange reserves, low foreign debts, the strongest debt to equity ratio in the region except for Hong Kong, and the lowest percentage of non-performing loans. These factors may be attributed to policy memories of hyper- inflation from printing money in the late 1940s to finance the civil war against Mao Zedong and the Communists. That only accelerated defeat. Taiwan has been fiscally conservative, and avoids cheap foreign currency loans for speculative projects. The head of their Council for Economic Planning and Development says, “Capital is like blood. If you use too much of it, it will cost you your life.”[2] That’s a more educational image than the grim one heard in Indonesia: “In banking, as in surgery, bleeding must eventually stop.”

Taiwan has put together engineering training, a national technology research lab and hard work of talented people to become a quiet giant in the world computer markets. They manufacture more than half the monitors and motherboards, and almost all of the world’s scanners. Their State Minister for Technology, Yang Shih-chien, says proudly that Taiwan has become almost transparent with Silicon Valley in information, human and material flow. This gives a new and broader meaning to transparency: open cooperation, lack of corporate vanity, profitable labor in obscurity, in Taiwan’s case selling three-quarters of their electronic production under someone else’s brand name — often American. For most of the region, however, transparency is needed in its most limited meaning: clear and trustworthy data for policy, transaction, and audit. Some who resist deride it as “occidental nudity.” They need, however, to save their skins by changing their ball costumes and masks for plainclothes.

(d) Japan. Much of Asia, not to mention our own beltway bureaucrats, wants Japan to be the locomotive to pull all the Asian economies up the hill.

The 200 billion dollar plan recently announced holds out some hope. But 800 such billions has already been spent in the last several years without changing political culture, domestic cross-purposes, and hidden drag. Two sets of figures help understanding. (1) Since the Japanese bubble burst after 1990, their total loss of value is the equivalent of 8 trillion US dollars in land and 4 trillion USD in stocks, or 12 trillion dollars in all. This, inflation adjusted, is equivalent to all Japan’s financial and material losses (excluding human losses) in World War II. (2) Take presently admitted non-performing loans of Japanese banks — add something for non-declared or out of sight — and then multiply proportionately in relation to the US savings and loan crisis of the late ’80s at its worst moment. This arithmetic suggests that the Japanese bank debt crisis, per capita, is five times as great as our S&L crisis. The United States eventually worked out of it, except for 120+ lawsuits still pending, and the political heritage called “Whitewater,” an alleged misuse of Resolution Trust Corporation funds. The Resolution Trust process generally worked well in the USA, but may come out differently when filtered through other cultures.
The editor of a Japanese equivalent of the Wall Street Journal published several months ago a brave series of articles on truths and shenanigans in the Japanese financial scene. His wife answered the doorbell one morning to be greeted by a gentleman with a revolver, who suggested that her husband publish no more such things. That editor is now working in another country. And the Japanese locomotive is still in the roundhouse.

(e) China. China is non-comparable, but inescapably must be reckoned with. After the various big and little Asian economic dragons have had their successes turn sour, is China the giant dragon who will prevail after, over, and above all? Or is China a colossal panda living on bamboo shoots that are rapidly disappearing?

The very fact that China is driving by policy for continued 8% growth may be dangerous. Stimulate domestic investment and demand? They’re doing it. But overhaul state industries and banks? They’re not doing it. Solving the political problem of growing unemployment (including a migrant population estimated at one hundred million or more) may advance the same crunches that other Asian economies are already in. Tremendous excess capacity, declining return on assets, non-performing loans, big property bubbles. Debt- equity ratios in Chinese state enterprises, once low, now approach 6 to 1, higher even than Korea.[3] I am less in awe of China’s projected economic power than in intuitive fear of its structural weaknesses.

IV. THEODICY AND THE NEXT MILLENNIUM
Some present phenomena in the Asian crisis go beyond folly to greed and fear, pride and terror. The word evil is out of fashion, but I think it is healthy to recognize its dimensions in human affairs. We are soon to enter a new millennium, which will contain its own quotient of terror and pride, of fear and greed. My wife and I have a journalist son who says that one needs theodicy to cope with these things. I didn’t know what theodicy meant. Something to do with The Iliad? “No, Dad. Not The Odyssey. T-h-e-o- d-i-c-y. The explanation of the divine attributes of God that allow the existence of physical and moral evil.” Each reader might develop his/her own theodicy, assisted if necessary by pastor, rabbi, priest or imam. I fall back on the teaching that an all-wise and generous God gives us both freedom and grace. Our actions, and repentance of sin, dispose us to be saved or damned. Charles Kindleberger’s “A History of Financial Crises” reminds us that the New York crash of ‘87 was not reflected in Tokyo, nor was the Tokyo crash of ‘90 repeated in New York. Panics are not automatically contagious internationally. But he also reminds us of the nearly bottomless fund of human vanity, appetite, mania, and stupidity. Long Term Capital Management, the Greenwich (Connecticut) hedge fund, and Long Term Capital Bank, the Tokyo mammoth, were both opaque until disastrous. A full and modern theodicy might include a theory of transparency that fairly binds souls to systems.

V. COMMUNITY, FREEDOM, AND RESPONSIBILITY
Power issues, I realize, will not be softened, let alone dispatched, by moral theory. But there is comfort nonetheless in a historical lesson of which a five-time ambassador reminds us: “the dispersion of power to semi- independent centers is philosophically the wisest, and operationally the most effective, government in place. With the least commotion and fanfare, this system has ensured the fabulous prosperity and high degree of civil contentment of our people.” That’s Robert Strausz-Hupe about American federalism, and its application in our foreign policy to the Marshall Plan and NATO.[4]
I dare apply the same federalistic thought in the century ahead, and across the other ocean, the one approached by Vasco da Gama. There, in the last thirty years, the Southeast Asian powers have nurtured ASEAN into being. It has functioned well to buffer regional hostilities. We should encourage its development without interference. Meanwhile, in a broader context, with our voice in ARF (ASEAN Regional Forum) and our continued hand in APEC (Asia Pacific Economic Cooperation) we may help ensure something grander, the slow emergence of a Pacific Community. Given the variety of cultures and numbers of people involved, that would be a vaster achievement than such Atlantic Community as exists. We might further the same end by attempting to elicit a new power-political center of gravity: recognize Japanese sloth and Chinese growth and diminish the mutual suspicion of these great nations by initiating policy dialogues with them on Asian security. Start with economic issues; move slowly to political and military matters.

I return to transparency, an essence of democratic faith. Because there is evil in human affairs, government should be conducted in the sunlight. Full information freely debated is a major guarantee of democracy. Such openness is increasingly desired by the Asian societies I have mentioned — as shown by Indonesian students demonstrating at risk, again; and Malaysian citizens daring to do so for Anwar Ibrahim. We must league ourselves with the elements of reason behind such forces and such voices. In containing as we can our own fears and greeds, our own prides and terrors, in expressing our own better nature, we will help advance the best energies of our neighbors all around the rim of the Pacific.

In the century just ending, James Madison has prevailed over Karl Marx. We must now hope and work that a world wired ever tighter electronically will be one in which petty self- interest yields, in the end, to creative common sense. Booms and busts are repetitive; they are the punctuation of capitalist history. After a bold exclamation point, an inverted question mark has appeared in Asia and elsewhere. In the long run, however, what matters is the history of freedom — how we define it, what we do with it, how we balance it with responsibility.

2) The encroachment of manufactural sector and the rise of speculation sector: The level of real production has been lowered - contraction in consumption and investment (decrease by 30% in 1998) and the government budget cut (10%) leading to stagnation in the domestic market and subsequent contraction of incomes - shortage of financial shortage caused by high interest rates and hasty structural adjustment leading to widespread bankruptcy (200 companies per day till summer of 1998), especially in small and medium sized firms, resulting in sharp increase in unemployment and drop in income and pulling down the economic growth to near minus digit. - increase in producer prices, superseding some trade-off effects due to stagnation in domestic demand, leading to high rates of inflation and general burden on household economy - transformation of the private (corporate) debt to public (people’s) debt (non- performing overnment bonds estimated between 135 and 250 billion dollars) - decrease in imports combined with increase in exports not likely to yield long-lasting positive effects due to the import-inducing structure of export-oriented economy - heavier burden of debt servicing (12-15 billion dollars a year) with abnormally high interests on negotiated debts, plus foreign exchange rates increase, which may lead to another debt crisis (total foreign debt: 150 billion dollars = 50% of GDP, requiring the minimum growth rate of 4% every year, which is now impossible) - concentration of economic assets to a few giant corporations - financial and M&A market for foreign investment, which may lead to a possible total failure of sovereign path of development.

3) Value judgement based on money and competition first has spread out Market oriented value system has spread out very quickly even to public education system and public broadcasting system. Competition first solidarity later system was adopted in every organization such as university, government administration office, public media and the NGOs. Some ngos decided to do management consulting to level up the efficiencies. Achievement based wage system has adopted in every organization. They decided to distribute the resources by the zero-sum base, which accelerate the competition within the organization. Most of the workers’ right which won during 1987 workers strikes are violated by economic crisis. Long working hours, low wage, unstable employment became a new rule under the new management system which emphasizes efficiency first.The neglect of the earning processes are accelerated. The concept of financial speculation has spread out among the university graduates salaryman. Most people are involved in investing in stock market which guarantees the short term interest due to the changeable stock market.

4) Social welfare oriented policy has changed: The major government program for coping with the dismissed after structural adjustment is to support public interns which guarantees 80% of salary from government side. Most of university graduates became public interns whether they work in whichever sectors. Those benefited from this policy are the employers who can employ with only 100-200 u.s. dollar per month as full time worker without any futhermore burdens. The second major program is launched at reeducation the unemployeds and the dismissed for job searching and job replacement. Each education institution which should satisfy some qualifications received the tuition fee per each student from government. Ironically, the educational institutions’ interest depend on the the number of the unemployed or the dismissed. Therefore the major function of those education is not to find out new jobs, but to control the unemployeds and the dismissed. Still the excluded sector from social safety nets is there.

* Increasing the deserted children 1997, 3,342 1998, 4,876

* Decreasing the birthrate 94, 1.8 1998 1.71

* Decreasing the consumption level purchasing clothes-21.2%, Food, -17.6%, private education -15.3%

* increasing the unstable employment: internship, part-time, SOHO, Venture business have increased / Intern received 60% wage level of fulltime workers

*unemployment rate has increased 1999. 7 7.6% unstable employment or unemployment 2,500,000-3,000,000/ age 15-19, 24.7% age 20-29 12.3% 90.8% of unemployeds ( 1,386,000 ) have lost their job within 1 year

*Middle class became lower class: Average middle class ( monthly household income level amount to be 2,000 u. s$ ) have undergone 30% income decrease/ real income ( adjusted by price increase rate ) decrease amounts to be 36%

*Increasing the number of homeless. Homeless people 800 in Seoul, 1,000 nationwide beggars in Seoul Station have increased from 50 to 2002 Initial responses towards IMF intervention positive expectation

Many of rationalistic intellectuals regards IMF intervention as a new chance for economic rationalization and democratization. Many of intellectuals already expressed the despair of the state led economic reform from chaebol centered to more stable and balanced one. In case it is impossible to do bottom up type economic reform, external intervention to press government and chaebol to do structural adjustment might be indirect way of economic rationalization.

2 ) Nationalistic Campaign

“Gold collection campaign” to make up the imbalances of foreign currencies was initiated by media and some NGOs. This kind of campaign originated from pre-colonial period to repay foreign debt to keep national sovereignty from foreign intervention. Especially women were very active in this kind of campaign through donation of their cherished small items such as wedding ring, son’ and daughters’ first year birthday rings. ” Tighten your belt/ burden sharing campaign” started accompanying with ” Gold collection campaign.” – Some of the ‘save the economy’ campaigns focussed on recycling food waste into stock feed in order to save dollars spent in importing 96% of the whole stock feed as well as to reduce the cost of waste dumping and save the environment. Yet, the good aims have not yielded corresponding results so far. - The ‘gold collection campaign’ started by 106 NGOs in early 1998 and finished in May was participated by 3.5 million people who amassed 270 tons of gold in total. This effected to a saving of 2.2 billion dollars.Though this was an international surprise, symbolizing the particularity of the South Korean mentality, it was not free of dark side. The big companies involved in the campaign sold the gold much cheaper than international market price, still taking better profit. About half of the gold-sales employees in the country lost their job in the process. This campaign later continued into “diamond collection campaign’, but received much less enthusiasm.

3. NGO’s responses

After this stage, several rational and alternative demands for economic reform began to be raised from the civil society. Some of these are; (1) the principle of “Fair Sharing of the Burden” in opposition to the one-way load on workers and grass-roots, (2) dissolution of chaebol system, and autonomous, selective adjustment and liberalization of the industry, (3) job-sharing and expanded security for the unemployed towards stable labour market, (4) re-negotiation with the IMF with the demands for transparency, accountability and civic participation, (5) disclosure and legal justice to the decision-makers responsible for economic crisis, (6) sovereign consumerism and empowerment of small corporate share-holders, (7) political reform, (8) media reform, and (9) international joint actions by civic groups on economic globalization. - An alternative SAP is described as (1) expansionary macro-economic policies and self-motivated, selective adjustment of the industry based on the participation and consensus of the workers and the civil society, and (2) creation of social responsibility on employment security and flexibility through confiscation of the ill-gotten assets of the chaebols’ owner families, and active employment facilitation and protection system.

With these goals, democratic trade unions and progressive NGOs have gathered together to form a wide solidarity action body. The labour-NGO solidarity body has so far served for raising public opinion on the problems of unilateral SAP and mass layoffs, faults of the IMF’s conditionalities, increasing the civic influence and the labour’s negotiating edge on the government, designing alternative social safety schemes for the unemployed, and fund-raising campaigns for the unprotected unemployed people. - Based on PSPD’s discussions, there are
several agenda on the fundamental reform of the state system that the civil society should focus on. They are (1) correct choice of reform partnership by the government, (2) reform of the government organization, (3) reform of the party and parliamentary structure, (4) redesign of the social welfare system, (5) reform of the elite formation system, (6) introduction of comprehensive anti-corruption laws, (7) improvement of human rights regime, and (8) media reform. - As the methods of increasing the civil society influence over the state reform, NGOs are jointly pressing the parliament to enact ‘civic organization support law’ and expanded information disclosure measures, abolishment of anti-democratic laws such as the National Security Act, as well as urging the government to do away with the government-sponsored right-wing NGOs. They are also demanding for the freedom of political activities, and institutionalizing participatory systems in governmental, administrative, and judicial mechanisms.

On the redesign of the social welfare system, NGOs and trade unions are demanding for a new social security system suitable for “slow-growth high-unemployment society” through (1) establishment of effective social safety net, (3) nation-wide full entitlement of social welfare services and establishment of comprehensive risk diffusion net, (3) establishment of national minimum welfare standards, and (5) democratization and transparency in the social security and fund institutions. – On fighting back corruption, NGOs are demanding for (1) change of the customs and paradigm of the government in its monopoly of information and policy production, (2) legislation of comprehensive anti-corruption act, (3) change of the state regulatory system to coordinating system over industries and finance, cutting off the business-politics collusion, (4) expulsion of corrupted politicians and bureaucrats by strict rule of law, and (5) restoration of the real-name banking system. - On media reform, core demands are; (1) no more government intervention in media and establishment of independence and public orientation of the media institutions, (2) limitation to chaebol’s ownership of media companies and undoing media monopoly, (3) independent program planning and editing, (4) undoing the monopoly of commercial ad business and reform of the public media fund management, and (5) establishment of an independent, public stock-holders’ broadcasting company.

“National Movement to Overcome the Unemployment” was jointly started by media companies, trade unions, religious groups, and NGOs, in order to raise unemployment fund, to create social safety net by the government and NGO cooperation, to establish employment information network, and to provide emergency relief activities for the most needed. There has been a great response to this campaign. A fund of 28 million dollars has been collected by public donations so far (Aug. 7). - Environmental groups started an energetic campaign called “Life-Giving Forest Tending Campaign”. It aimed for providing 100 thousand jobs a year by organizing forest tending public works around the country, thus saving the woods and developing water resource of 24 billion tons every year. - Furthermore, a great number of religious institutions and community groups have opened shelters and counseling centers to provide humanitarian support for the unemployed. But, even though such supportive activities yield some immediate effect, they may also obscure the root causes and fundamental solutions from public attention. The link between humanitarian supports and more fundamental approach to the crisis has not been well established yet.

4. workers’ resistance

This section is an excerpt from Kang, Soo-Dol, “The Social Impact of the IMF-Program in South Korea”, June, 1998. Translation into English by Francis Daehoon Lee.

1) The first general strike and dilemma for trade unions In May 1998, after 5 months of deadly and massive layoffs, the KCTU {{. Korean Congress of Trade Unions, which is a national center for democratic trade unions.}}staged the first general strike against the layoff-oriented restructuring schemes, involving 120,000 participants for two days. The strike was successful to a certain extent, and the union leadership was optimistic on the prospect of a second general strike. But the government and management schemed to doubly maneuver: While scheming behind the scene to bring the KCTU in the Tripartite Commission, they launched media campaigns to rally the public behind their interests, an ideological offensive against a general strike, articulating that it would invite a second financial crisis causing all to fall together. In the end, the KCTU decided to participate in the second Tripartite Commission. With the situation turning as such, the position of the KCTU and the attitudes of its members became intricate. They were in a sense, hamstrung; they could not act anyway decisively. On the one hand, they sensed a call of mission to overcome a national crisis and not to jeopardize the current precarious situation, and on the others, they felt deep angers and sense of betrayal by capital and the regime.

1) The case of Hyundai Motors strike: The same month, May 1998, Hyundai Motors, determining that 15,000 out of the total 35,000 employees on the payrolls, disclosed its plan to dismiss about 8,200 workers (when 3,700 left their jobs by honorary termination).In reaction to this, the union went onto a strike demanding the withdrawal of readjustment dismissal and their job stability. Hyundai Motors is a company that came into inception in 1967, with a capital of 100 million won. Since then its business rapidly grew100,000 folds in 30 yea. In fact, the company has created a myth of continuously recording profits for 18 years from 1982 through 1997. In 1997 alone, the company achieved a gain of 46.5 billion won, but with the onset of 1998 the management abruptly decided, in anticipation of allegedly l, 500 billion won losses for the year, to lay off 3,700 by honorary termination, to reduce wages for 6,800 workers, and lay off more employees subsequently as part of structural adjustment. This scheme was sufficient to invite a strong reaction from the workers. The labor leader Kim Kwang-Shik expressing his undisguised opposition stated, if Hyundai Motors, a corporation that has made profits more than for ten years consecutively, carries out a dismissal plan as part of its structural readjustment, in consultation with labor, others will follow. In a poll held in May this year to determine the pending labor dispute issue, 89.7 percent of members participated and 89.4 percent agreed to a stroke. As a result, the union launched the first strike on May 27. One worker forced a voluntary dismissal voiced his anger saying, we die anyway, one way or another. On the other hand, the management-initiated family-sm, once attributed as the key driving force for the creation of Hyundai Motors myth, is now being transmuted into a myth of resistance. The union has conducted various discussion meetings on the issues of job stability and other labor-related topics, inviting the families of union members. Soon the workers families organized themselves into a new activist group called Durehoe; actually the company’s decision to lay off 8,200 workers precipitated the emergence such a grassroots body, triggering their enthusiasm. When the strike took place, members of this organization spontaneously joined the rank of demonstrators, scattered small groups merging into the larger masses, upholding in their hands upheld placards and pickets with their own handwritings of Families be united and stop dismissal, Dear husbands, I love you, With the structural adjustment dismissal, we all fall, etc. Clear sings of solidarity was displayed. People joined in signing petitions for job stability. The participants numbering more than 5,000 showed no concern for face-saving or any trace of shame; they were resolute in defending the jobs for their husbands. On the eve of the strike, 250 union members families sit in the main entrance of the company; A Ms. Lee, the president of Dure-Hoe, made an impromptu speech, Dear husbands, lets prove when you return home that we can win securer livelihoods only when we fight hand in hand with families, and It is unacceptable for the company, one that accrued profits for 16 years through our husbands long hours work, direct day and night shifts, to dismiss a massive number of workers because of short-term difficulties. These wives also participated in the May 30 Taewha-Kang demonstration; in early June, they made a protest visit to the City authority and continued on their protest rallies near the company main entrance. Thus, the workers families have come to constitute a crucial part of the Ulsan labor movement.

2) The case of KIA motors strike: In the case of KIA Motors, whose 1998 business plans called for an organizational efficiency of 96 percent (in its Asan plant the efficiency has risen by 10 percent) and above 96 percent of operational rate. But the company has produced excess power. To achieve the stipulated efficiency and rate, the company strived to maximize the manpower efficiency, establish a flexible production system geared to demands and orders; for such purposes, the management frequently shifted job assignments and attempted to maximize production with minimal manpower. As part of its plan to purge excess manpower, the company eliminated work extension, curtailed the plant operation, restructured the shift schedule, expanded contract-out services, and other personnel reduction programs. To further reinforce its restructuring, in 1998 the management, introducing the so-called Kia Paradigm Shift (KPS) patterned after a Japanese model, inaugurated a new training program to strengthen the control of workers by supervisory personnel, capitalizing on workers fears of job instability.Simultaneously the company implemented a variety of programs designed to intensify its control and indoctrinate its employees in the ideals of KPS. Despite all this, the union went onto a strike, demanding job security, payment of wages in arrears, retention of collective bargains, withdrawal of charges filed by the company, and to set up a committee to review work hour reduction. The union was concerned for safeguarding jobs, but opposed to the takeover of the company by a third party. Already in April the court decided on court protection of KIA Motors and Asia Motors, and appointed the court protection manager. To the Mando Machine, the court ordered initiation of reconciliation. A maelstrom swept over the country’s auto industry, as KIA turned insolvent and the nation went on to the IMF bailout aid. The resultant sharp decline in domestic auto sales compelled auto industry to curtail operations, go for temporary closure, and lay off workers. All this gravely threatens the job stability of autos industry workers. They are fearful of losing job. Among the members of the Federation of Metal Trade Unions (FMTU), the auto labor union with its 110,000 members constitutes the main force of the KCTU. By virtue of this fact, the auto labors reaction to the offensive launched by capital could determine the destiny of the whole KCTU. Country’s major auto companies currently are deeply concerned with the future of KIA Motors, each of them carefully appraising the possible outcome of the overall structural readjustment of auto industry, whether it will end up in two or three-maker system, and its impact on its future. In this context, the KIA labor union is opposed to a takeover by a third party and determined to secure the right to livelihood and job stability. On the other hand, in a recent press interview, the FMTU announced its demands for Samsung to hand off from auto industry, based on the principle of restructuring to concentrate on the main lines of business, to withdraw the plan for takeover of KIA by a third party, and to maintain the current level of employment through reduction of work hours to 38 hours. To this end, the Federation demanded to set up a special committee for the restructuring of auto industry, declaring that the it will actively intervene actively in the restructuring process. In May 1998, in the face of the company persisting on not to resolve the issue of e of ages nor implementing collective bargain agreements, the union decided on labor disputes. In this milieu, Mr. Song of 36 years of age spread thinner on his body in an attempt to immolate himself.

3) public sector workers strikes: Another big strikes have arisen from public sectors workers. Many of government managed companies such as Korean Communication Co, money manufacturing co were declared to be privatized with structural adjustment. Agricultural cooperatives, fishery cooperatives and livestock cooperatives were also declared to be integrated, which means large numbers’ lay offs. Many strikes were organized by the employed who were resisting the so called structural adjustment. Seoul subway workers began strikes with ‘job sharing’ ‘ labor time shortening’ campaign. Seoul subway workers strikes which advocates the public alternatives notwithstanding their own unemployment issues have finished without any civil society ngo’s support. Other public service workers such as medical workers and part time university lecturers were organizing strikes against structural adjustment.

4) Awakening processes of workers strikes : At first stage, workers are cooperative with the nationwide campaign to save national economy. Their own cooperation and sacrifices might contribute to revive national economy. After participating in government committee for coordinating workers, managers and government officers, workers realized the nature of economic liberalization process. Government and managers side try to demand workers obedience to structural adjustment without any real and serious sharing burdens with managers side. Workers strikes starting from ‘job keeping’ campaign have developed into ‘job sharing’ with ‘ working time shortening.” They are challenging the misguidances of government policy of privatization and unconditioned welcoming of foreign money including hot money. The major targets became more policy critics such as economic liberalization and privatization, and chaebol centered growth system. The federation of banking trade unions were discussing about going to law against IMF for compensation for the loss in January, 1999. They started mass campaign to receive signature for this lawsuit from this May on. Initiated by the federation of banking trade union, the accusers are included the dismissed workers from banks, the dismissed from the other public or private corporations, bankrupted small or middle sized businessmen, trade unions and some NGOs ( PSPD, CCEJ etc).

5. Reflections and Prospects: Neither governments which is guided by IMF prescription nor ngos which became more integrative with government policies especially because of financial support nor trade unions which are pushed back to deal with their urgent unemployment issues, could deal with this economic crisis with viable alternatives. National Bourgeois interest, TNCs’ interest and governments’ interest have sometimes coincided, and othertimes become contradictory. From the people’s and civil society’s position, it became more and more difficult to build up solidarity. For example, from the government side, the general policy to deal with the unemployment issues is to build up public money to support to reeducate the unemployeds to find new jobs. Many of ngos are applied to get these public money to deal with unemployment issues. Not only religious organizations but also politically progressive ngos are absolved in distributing unemployeds allowances or doing reeducation program. Other ngos are satisfied with legislation of civil law such as ‘anti-discrimination law against gender inequality, anti-corruption law which partly coincide with neo liberal economic order’s interest. The unemployed themselves are divided according to their own interest. Some young professionals are occupied with getting government support to start venture business. Others are satisfied with the short term interest in stock market with their retirement allowances. Because of the complexities of economic crisis, it became very difficult to build solidarity among trade unions and ngos KHIS started the networking program of TNC / IMF/ WTO system monitoring. Because most of Korean Ngos and trade unions are in short of information on these area, KHIS tried to give information and develop advocacy and campaign. KHIS started with monitoring Korean TNCs labour abuse and environment encroachment outside Korea. It tried to legislate code of conduct of Korean TNCs. Due to 4 years’ monitoring activities some misbehavior of managers are corrected by campaign and managers education program. After economic crisis, many TNCs have come to Korea. Now KHIS tried to extend its activities to monitor TNC’s labour abuse and environment encroachment by these TNCs. Another main agenda is to build solidarity between the excluded more progressive organizations such as KCTU, human rights organizations which advocates the abolition of security law and civil society ngos such as women’s organizations, environmental organizations, participatory democratization organizations. Not withstanding building solidarity among sectors, building solidarity between central and local organizations are also targeted.
Thus, progressive social movement should lead active popular resistance to the victimization of people and the expansion of unearned income structure, and at the same time, raise public awareness on alternative approaches to growth and development. - Due to the wrong notion of “citizens’ movement” in the past, there has been artificially-made distance between civic groups and labour movement. However, the pursuit of a new social system requires and activates diverse civic (thematic) and class (by economic groups) movements to make strategic solidarity with each other. Implying strategic cooperation with women’s, peace, human rights, consumer rights, environmental, and religious reform movements, the labour’s solidarity with civic movement is a vital factor for new perspectives on the future. - This is a practical necessity, too, in terms of exercising multi-layered containment strategy against the power and the capital in a neo-liberal era. Such plan and experiment conducted by social movement in South Korea represents distinct approach from the Western countries. Unlike developed countries where the labour movement is institutionalized or tamed, here, there is a great possibility for linking militant labour with progressive civic actions. The statist authoritarianism and labour-exclusive system of South Korea is another background for the need of this link. The role of social movement is to develop and strengthen this unique solidarity model to set a new universal model and creation of universalism from particular terrain.

by Kavaljit Singh

International investors’ enthusiasm with respect to growth prospects in Southeast Asia has been followed by panic. Both the outstanding economic performance of Southeast Asian economies and their ability to master adjustment challenges had led most observers of these economies to the conclusion that “Asia is different”. In comparison with previous currency crises, the macroeconomic fundamentals (GDP growth, inflation, fiscal deficit, external indebtedness, domestic savings, export performance) in the Southeast Asian economies seemed to be consistent with the fixed or quasi-fixed exchange rate regimes. Even large current account deficits were not classified as “high risk” although the vulnerability of Southeast Asian countries had increased during the last decade due to a surge in capital inflows, a construction boom, the appreciation of the US dollar, and the liberalization of domestic financial markets without strict enforcement of prudential standards.

•    Early signals of vulnerability should have warned domestic policymakers to take precautionary measures such as more exchange rate flexibility to end sterilization policies, higher marginal reserve requirements, and prudential standards for bank lending to reduce the risk exposure of banks. Some of these measures were taken in 1996, but apparently it was too little or too late. In the aftermath of the crisis, the enforcement of prudential rules in the financial sector and the clearing of bad debt figure high on the policy agenda. In order to help financial restructuring, fiscal and monetary policies should not be overly restrictive.
•    The role of external assistance is ambiguous because of negative incentive effects. The currency crises in Asia boosted the amounts of emergency lending by the IMF and other countries, which may raise expectations that defaults will become cheaper in the future. Moreover, officially implemented early warning systems may easily produce the bad news which triggers exchange rate crises.
•    All in all, Asia is not different from other regions. High current account deficits and real appreciation expose countries with fixed or quasi-fixed exchange rates and fragile domestic financial markets to the risk of a reversal of capital inflows. This mounting risk position can lead to a crisis when bad news arrives and domestic measures are delayed.
•    Therefore, Asia could have learned from previous currency crises in Latin America and Europe: first, extreme solutions for the exchange rate regime (currency boards or a passive crawling peg with wide intervention bands) work best; second, deregulated goods and factor markets with strict prudential supervision (especially in the phase of financial liberalization) are necessary preconditions for a stable fixed exchange rate regime; third, development models with discretionary government interventions face difficult times since the globalization of goods and factor markets renders economic plans of today obsolete tomorrow.

The Japanese Crisis of 1990

In 1985-1987 the Japanese authorities have organized massed investing money into the economy. It was done by preferential crediting of commercial banks. And so, the discount rate of Bank of Japan those years was lowered from 5 % to 2,5 %.

Banks amicably rushed to borrow from the state. Naturally, the bankers were unobtrusively hinted that the received funds are best to lend to the construction companies and farmers who had very powerful lobbyists in the ruling Japanese political Liberal Democratic party. As a result, the construction sector got a fantastic boom.

The prices for the real estate repeatedly flied up. Owners of the real estate pledge their property and received from it money invested in new building projects. And the government had been inflating the economy with money. In the 1986-1990 money supply grew by an average of almost 11%. Price indexes remained stable while, so no one admitted that the country had growing inflation.  It is not surprising – as the enhanced price of the real estate and securities in the majority of such indexes is not reflected.

And the real estate enhance was enormous because just on these markets as the basic sum of issue money was injected. The Japanese shares during1985-1990 had risen in price at four times, while land and buildings – at several dozen times. The bank of Japan had really brought down interest rates. Now the long-term loans were issued not under 7% but under 5% and short - generally under 4%. Of course, the number willing to take a loan only increased. The bubble was inflated till the size, unprecedented in the history of mankind. But when 1990 came the bubble burst.

The matter is that many Japanese banks which absolutely had already become swollen from gratuitous money, decided to fill up portfolios of the assets with foreign currencies. So they began to buy up US dollars, South Korean Wons (KRW) and securities expressed in them. As thus they have amicably exposed a large quantity of yens for sale, the Japanese currency began to fall in price. On December, 25 1989 the Bank of Japan concerned about it increased interest rates. Following this and commercial banks announced that they would no longer lend to their customers so cheaply. For many borrowers, especially for those who wanted to pay off on old debts, having made new, it was a hard blow. Such people had rushed to sell the real estate and securities. This wave of sales had coincided with the fact that the market no longer received money from bond issues. As a result, prices began to fall catastrophically.

For the only 1990 the Japanese real estate had fallen in price twice and approximately on shares had as much depreciated. But many properties had liens on loans. Banks appeared in a situation when instead of receiving back money which they had lent to borrowers, they could count only on the real estate which could be sold at the best for two thirds of the initial sum. It meant that massive bankruptcies of banks – with clear consequences for investors are inevitable and also for the majority of economic agents in the country.

The moment came when the tremendous boom was shifted by collapse. And here it began the worst - that gave the Japanese crisis such unprecedented continuance in the history. The Government tried to prevent the inevitable consequences of blundering investment and did their utmost to rescue banks that had accumulated trillions of bad loans.

Nine « stimulating the economy» programs were adopted in the years of 1990-1999 the total cost which reached 888 billion dollars.

Their essence was that the state budget paid allowances to the companies experiencing hardship, in addition the substantial sums were spent on the fight against lowering prices. Thus, for 10 years the construction industry received orders from the government for 60 trillion yen that was about one-third of all building orders during this period.

Money-credit expansion was renewed - the discount rate was lowered from 6% in 1991 to 0.5% in 1997 and to 0% in 2000, it kept its zero level until July 2006, when it increased to 0.25 %. Money supply for the 1991-98 was increased annually by 2.8% and in subsequent years - even stronger. Bank of Japan adopted a program for redemption of securities directly from commercial and industrial enterprises rather than from banks. Indeed, banks were spending all that had received from the State to cover their losses on bad debts, and virtually no new loans were granted. Therefore, the Government resorted to this method of loading money into the economy. Remember about «open-market operations»? That they are.

To interfere with falling of share prices, the Bank of Japan began to arrange intervention in the stock market, massively buying securities, only the Nikkei index dropped below 12,000. As a result, the index did not fall below this level, but also was not growing. Perhaps you have already realized the overall logic of these actions. The Japanese authorities were trying to save those companies, especially banks and construction companies, which during the boom admitted the most serious faults. To that aim, they resorted to a variety of means, including strongly hamper the fall in prices of real estate and securities, trying to keep them at overvalued levels.

As a result, both processes - devastation losers and blowing away a price bubble – occurred as in the slowed down cinema. Banks and companies with huge debts have become a monstrous ghosts who can neither live nor die, but stretches its excruciating agony by exhausting resources from the healthier parts of the economy.

Prices remain unnaturally high (now Japan is still the most expensive country in the world), but the government prevented them from falling, considering deflation as the worst evil that only was possible.

In 1991-1994 Japanese real estate fell by 80%, and thereafter every year become cheaper and cheaper. But to it is still not allowed to fall to its natural-market level as each step to this falling turns to tragedy. And this story has been lasting for 15 years. Nikkei index today is still higher than the eve of the boom (in 1985 it was equal to 9500), the potential collapse of property prices is not exhausted. Fifteen years of depression - is a unique world record. But if you consciously pursue policies tensile most unpleasant of all phases of the business cycle, so then could not be anything else.

What should make the Japanese government to return the country to normal life? To do this, should abandon intervention into the economy and not to impede the natural process of reducing prices and the devastation of companies with bad debts. In particular, it is necessary to turn immediately to the tight financial policy and balance the state budget by eliminating subsidies for the “ghost” banks and enterprises.

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Tony Walker of the financial Times asked, were there media voices, counterparts to the economist Paul Krugman, voicing concerns about the Southeast Asian bubble economy? For the most part, Walker felt that no media organization had the foresight or perception to consistently “blow the whistle” on the disaster in the making.

In defense of the media, Walker noted that banks, diplomats, and international lending institutions as likely to ignore signals, and with fewer excuses for doing so. Reasons for this were listed as: the media (and financial world) was in love with the concept of an Asian miracle, reporters sent to Asia were typically young and less experienced without the clout and experience needed to put a technical or critical article on the front page, and the success of certain Asian governments in surpressing or hiding unpleasant aspects of their financial fundamentals. Finally, technical complexity of the issues was a barrier to both understanding and coverage, until a disaster that every reader could understand occurred.

A particular failing of the media was, Walker felt, the media’s representation of the Thai economic slide as an exception. This spectacular and well covered event should have brought the economic issues previously seen as too dry, out onto the front page. Instead, the questions remained shelved and Thailand was portrayed as an isolated case. Finally, the lack of alarm sounded after the Mathahir-Soros exchange of September 1996, another event that was both prescient and easy reading in mass media, might be attributed to the lack of foreign news coverage in mass media. Walker cited figures of a TV foreign content drop from 45% in the 1970’s to 13.5% in the 90’s, and similar figures for print media.

However, when disaster struck, coverage was excellent but “without reflection”. In other words, Walker felt that the media was, as usual, good at “shouting fire,” covering a high interest catastrophe. The coverage of the problems and warnings that should have been visible leading up to the collapse were, he felt, underreported.

Clay Chandler of the Washington Post then described his experiences as a reporter in the field. Citing jetlag, exclusion of foreign press from insider networks, and the pressures from editors following global stories, he painted a picture of reporters desperate for any story, not a specific insight. In Mr. Chandler’s experiences, reporters who truly cared and wished to follow issues in depth had neither the time nor the audience for such pursuits, even after the crises occurred, and in spite of their desires to do so.

Another insight of Mr. Chandler was that in Asia, before the crises, people did not sense a crises. Thus, there was little ’story’ in spite of an actual problem on the way. He vividly described interviewing Asian businessmen, stating that the crises was no problem as they were wealthy and safe, and it was surely a temporary flutter in the economy.

Chris Beer concluded the discussion by bringing out cases where the media had given an overly negative impression. South Korea, he said, was still struggling but “making headway”. Some medium sized companies in Thailand (President Rice, Thai Union Frozen Products, etc.) were going forward without foreign direct investment, and their shares were rising in value. The still-advancing high tech small business sectors in Singapore, Taiwan, and Hong Kong had, he felt been overlooked as well.

In short, his associates in the media had done a good job in criticism, but had not brought out what could and should be done to help, or where some newsworthy success stories still shone.