'Financial warfare' triggers global economic crisis

http://www.twnside.org.sg/title/trig-cn.htm

'Financial warfare' triggers global economic crisis

As financial markets continue to tumble and as national economies sink deeper into recession, it is clear that the East Asian crisis has developed into a global economic crisis. The international money managers whose speculative activities have heavily contributed to this development, have been abetted by the IMF with its push for the deregulation of international capital flows. After having whittled away the capacity of national governments to effectively respond to such 'financial warfare', these powerful forces are working to secure even greater control of the Bretton Woods institutions and a more direct role in the shaping of the international financial and economic environment.

by Michel Chossudovsky

---

'PRACTICES of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.' (Franklin D Roosevelt's First Inaugural Address, 1933)

Humanity is undergoing in the post-Cold War era an economic crisis of unprecedented scale leading to the rapid impoverishment of large sectors of the world population. The plunge of national currencies in virtually all major regions of the world has contributed to destabilising national economies while precipitating entire countries into abysmal poverty.

The crisis is not limited to South-East Asia or the former Soviet Union. The collapse in the standard of living is taking place abruptly and simultaneously in a large number of countries. This worldwide crisis of the late 20th century is more devastating than the Great Depression of the 1930s. It has far-reaching geo-political implications; economic dislocation has also been accompanied by the outbreak of regional conflicts, the fracturing of national societies and in some cases the destruction of entire countries. This is by far the most serious economic crisis in modern history.

The existence of a 'global financial crisis' is casually denied by the Western media, its social impacts are downplayed or distorted; international institutions, including the United Nations, deny the mounting tide of world poverty: 'The progress in reducing poverty over the [late] 20th century is remarkable and unprecedented....'¹ The 'consensus' is that the Western economy is 'healthy' and that 'market corrections' on Wall Street are largely attributable to the 'Asian flu' and to Russia's troubled 'transition to a free- market economy'.

Evolution of the global financial crisis

The plunge of Asia's currency markets (initiated in mid- 1997) was followed in October 1997 by the dramatic meltdown of major bourses around the world.

In the uncertain wake of Wall Street's temporary recovery in early 1998 - largely spurred by panic flight out of Japanese stocks - financial markets back-slided a few months later to reach a new dramatic turning point in August with the spectacular nose-dive of the Russian ruble. The Dow Jones plunged by 554 points on 31 August (its second largest decline in the history of the New York Stock Exchange) leading in the course of September to the dramatic meltdown of stock markets around the world. In a matter of a few weeks (from the Dow's 9,337 peak in mid-July), $2,300 billion of 'paper profits' had evaporated from the US stock market.²

The ruble's free-fall had spurred Moscow's largest commercial banks into bankruptcy, leading to the potential takeover of Russia's financial system by a handful of Western banks and brokerage houses. In turn, the crisis has created the danger of massive debt default to Moscow's Western creditors, including the Deutsche and Dresdner banks. Since the outset of Russia's macroeconomic reforms, following the first injection of IMF 'shock therapy' in 1992, some $500 billion worth of Russian assets - including plants of the military industrial complex, infrastructure and natural resources - have been confiscated (through the privatisation programmes and forced bankruptcies) and transferred into the hands of Western capitalists.³ In the brutal aftermath of the Cold War, an entire economic and social system is being dismantled.

'Financial warfare'

The worldwide scramble to appropriate wealth through 'financial manipulation' is the driving force behind this crisis. It is also the source of economic turmoil and social devastation. In the words of renowned currency speculator and billionaire George Soros (who made $1.6 billion of speculative gains in the dramatic crash of the British pound in 1992), 'extending the market mechanism to all domains has the potential of destroying society'.⁴

This manipulation of market forces by powerful actors constitutes a form of financial and economic warfare. No need to recolonise lost territory or send in invading armies. In the late 20th century, the outright 'conquest of nations', meaning the control over productive assets, labour, natural resources and institutions, can be carried out in an impersonal fashion from the corporate boardroom: commands are dispatched from a computer terminal, or a cellphone. The relevant data are instantly relayed to major financial markets - often resulting in immediate disruptions in the functioning of national economies. 'Financial warfare' also applies to complex speculative instruments, including the gamut of derivative trade, forward foreign exchange transactions, currency options, hedge funds, index funds, etc. Speculative instruments have been used with the ultimate purpose of capturing financial wealth and acquiring control over productive assets. In the words of Malaysia's Prime Minister Mahathir Mohamad: 'This deliberate devaluation of the currency of a country by currency traders purely for profit is a serious denial of the rights of independent nations.'⁵

The appropriation of global wealth through this manipulation of market forces is routinely supported by the IMF's lethal macro-economic interventions which act almost concurrently in ruthlessly disrupting national economies all over the world. 'Financial warfare' knows no territorial boundaries; it does not limit its actions to besieging former enemies of the Cold War era. In Korea, Indonesia and Thailand, the vaults of the central banks were pillaged by institutional speculators while the monetary authorities sought in vain to prop up their ailing currencies. In 1997, more than $100 billion of Asia's hard currency reserves had been confiscated and transferred (in a matter of months) into private financial hands. In the wake of the currency devaluations, real earnings and employment plummeted virtually overnight, leading to mass poverty in countries which had in the post-war period registered significant economic and social progress.

The financial scam in the foreign exchange market had destabilised national economies, thereby creating the preconditions for the subsequent plunder of the Asian countries' productive assets by so-called 'vulture foreign investors'.⁶ In Thailand, 56 domestic banks and financial institutions were closed down on the orders of the IMF, and unemployment virtually doubled overnight.⁷ Similarly in Korea, the IMF 'rescue operation' has unleashed a lethal chain of bankruptcies, leading to the outright liquidation of so-called 'troubled merchant banks'. In the wake of the IMF's 'mediation' (put in place in December 1997 after high-level consultations with the World's largest commercial and merchant banks), 'an average of more than 200 companies [were] shut down per day (...) 4,000 workers every day were driven out onto [the] streets as unemployed'.⁸ Resulting from the credit freeze and 'the instantaneous bank shut-down', some 15,000 bankruptcies are expected in 1998, including 90% of Korea's construction companies (with combined debts of $20 billion to domestic financial institutions).⁹ South Korea's Parliament has been transformed into a 'rubber stamp'. Enabling legislation is enforced through 'financial blackmail': if the legislation is not speedily enacted according to the IMF's deadlines, the disbursements under the bailout will be suspended, with the danger of renewed currency speculation looming.

In turn, the IMF-sponsored 'exit programme' (i.e., forced bankruptcy) has deliberately contributed to fracturing the chaebols, which are now invited to establish 'strategic alliances with foreign firms' (meaning their eventual control by Western capital). With the devaluation, the cost of Korean labour had also tumbled: 'It's now cheaper to buy one of these [high- tech] companies than [to] buy a factory - and you get all the distribution, brand-name recognition and trained labour force free in the bargain....'¹⁰

The demise of central banking

In many regards, this worldwide crisis marks the demise of central banking, meaning the derogation of national economic sovereignty and the inability of the national State to control money creation on behalf of society. In other words, privately held money reserves in the hands of 'institutional speculators' far exceed the limited capabilities of the world's central banks. The latter acting individually or collectively are no longer able to fight the tide of speculative activity. Monetary policy is in the hands of private creditors who have the ability to freeze State budgets, paralyse the payments process, thwart the regular disbursement of wages to millions of workers (as in the former Soviet Union) and precipitate the collapse of production and social programmes. As the crisis deepens, speculative raids on central banks are extending into China, Latin America and the Middle East with devastating economic and social consequences.

This ongoing pillage of central bank reserves, however, is by no means limited to developing countries. It has also hit several Western countries including Canada and Australia where the monetary authorities have been incapable of stemming the slide of their national currencies. In Canada, billions of dollars were borrowed from private financiers to prop up central bank reserves in the wake of speculative assaults. In Japan - where the yen has tumbled to new lows - 'the Korean scenario' is viewed (according to economist Michael Hudson) as a 'dress rehearsal' for the takeover of Japan's financial sector by a handful of Western investment banks. The big players are Goldman Sachs, Morgan Stanley, Deutsche Morgan Grenfell, among others, who are buying up Japan's bad bank loans at less than 10% of their face value. In recent months, both US Secretary of the Treasury Robert Rubin and Secretary of State Madeleine K Albright have exerted political pressure on Tokyo, insisting 'on nothing less than an immediate disposal of Japan's bad bank loans - preferably to US and other foreign "vulture investors" at distress prices. To achieve their objectives, they are even pressuring Japan to rewrite its constitution, restructure its political system and cabinet and redesign its financial system.... Once foreign investors gain control of Japanese banks, these banks will move to take over Japanese industry...'¹¹

Creditors and speculators

The world's largest banks and brokerage houses are both creditors and institutional speculators. In the present context, they contribute (through their speculative assaults) to destabilising national currencies, thereby boosting the volume of dollar denominated debts. They then reappear as creditors with a view to collecting these debts. Finally, they are called in as 'policy advisers' or consultants in the IMF- World Bank-sponsored 'bankruptcy programmes' of which they are the ultimate beneficiaries. In Indonesia, for instance, amidst street rioting and in the wake of Suharto's resignation, the privatisation of key sectors of the Indonesian economy ordered by the IMF was entrusted to eight of the world's largest merchant banks, including Lehman Brothers, Credit Suisse-First Boston, Goldman Sachs and UBS/SBC Warburg Dillon Read.¹² The world's largest money managers set countries on fire and are then called in as firemen (under the IMF 'rescue plan') to extinguish the blaze. They ultimately decide which enterprises are to be closed down and which are to be auctioned off to foreign investors at bargain prices.

Who funds the IMF bailouts?

Under repeated speculative assaults, Asian central banks had entered into multi-billion-dollar contracts (in the forward foreign exchange market) in a vain attempt to protect their currency. With the total depletion of their hard currency reserves, the monetary authorities were forced to borrow large amounts of money under the IMF bailout agreement. Following a scheme devised during the Mexican crisis of 1994- 95, the bailout money, however, is not intended 'to rescue the country '; in fact the money never entered Korea, Thailand or Indonesia; it was earmarked to reimburse the 'institutional speculators', to ensure that they would be able to collect their multi-billion-dollar loot. In turn, the Asian tigers have been tamed by their financial masters. Transformed into lame ducks, they have been 'locked up' into servicing these massive dollar-denominated debts well into the third millennium.

But 'where did the money come from' to finance these multi- billion-dollar operations? Only a small portion of the money comes from IMF resources: starting with the 1995 Mexican bailout, G7 countries, including the US Treasury, were called upon to make large lump-sum contributions to these IMF- sponsored rescue operations, leading to significant hikes in the levels of public debt.¹³ Yet in an ironic twist, the issuing of US public debt to finance the bailouts is underwritten and guaranteed by the same group of Wall Street merchant banks involved in the speculative assaults.

In other words, those who guarantee the issuing of public debt (to finance the bailout) are those who will ultimately appropriate the loot (e.g., as creditors of Korea or Thailand) - i.e., they are the ultimate recipients of the bailout money (which essentially constitutes a 'safety net' for the institutional speculator). The vast amounts of money granted under the rescue packages are intended to enable the Asian countries to meet their debt obligations with those same financial institutions which contributed to precipitating the breakdown of their national currencies in the first place. As a result of this vicious circle, a handful of commercial banks and brokerage houses have enriched themselves beyond bounds; they have also increased their stranglehold over governments and politicians around the world.

Strong economic medicine

Since the 1994-95 Mexican crisis, the IMF has played a crucial role in shaping the 'financial environment' in which the global banks and money managers wage their speculative raids. The global banks are craving for access to inside information. Successful speculative attacks require the concurrent implementation on their behalf of 'strong economic medicine' under the IMF bailout agreements. The 'big six' Wall Street commercial banks (including Chase, Bank America, Citicorp and J P Morgan) and the 'big five' merchant banks (including Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney) were consulted on the clauses to be included in the bailout agreements. In the case of Korea's short-term debt, Wall Street's largest financial institutions were called in on Christmas Eve (24 December 1997) for high-level talks at the Federal Reserve Bank of New York.¹⁴

The global banks have a direct stake in the decline of national currencies.

In April 1997, barely two months before the onslaught of the Asian currency crisis, the Institute of International Finance (IIF), a Washington-based think-tank representing the interests of some 290 global banks and brokerage houses, had 'urged authorities in emerging markets to counter upward exchange rate pressures where needed...'¹⁵ This request (communicated in a formal letter to the IMF) hints in no uncertain terms that the IMF should advocate an environment in which national currencies are allowed to slide.¹⁶

Indonesia was ordered by the IMF to unpeg its currency barely three months before the rupiah's dramatic plunge. In the words of American billionaire and presidential candidate Steve Forbes: 'Did the IMF help precipitate the crisis? This agency advocates openness and transparency for national economies, yet it rivals the CIA in cloaking its own operations. Did it, for instance, have secret conversations with Thailand, advocating the devaluation that instantly set off the catastrophic chain of events? Did IMF prescriptions exacerbate the illness? These countries' moneys were knocked down to absurdly low levels.'¹⁷

Deregulating capital movements

The international rules regulating the movements of money and capital (across international borders) contribute to shaping the 'financial battlefields' on which banks and speculators wage their deadly assaults. In their worldwide quest to appropriate economic and financial wealth, global banks and multinational corporations have actively pressured for the outright deregulation of international capital flows, including the movement of 'hot' and 'dirty' money.¹⁸ Caving in to these demands (after hasty consultations with G7 finance ministers), a formal verdict to deregulate capital movements was taken by the IMF Interim Committee in Washington in April 1998. The official communique stated that the IMF will proceed with the amendment of its Articles with a view to 'making the liberalisation of capital movements one of the purposes of the Fund and extending, as needed, the Fund's jurisdiction for this purpose'.¹⁹ The IMF managing director, Mr Michel Camdessus, nonetheless conceded in a dispassionate tone that 'a number of developing countries may come under speculative attacks after opening their capital account' while reiterating (ad nauseam) that this can be avoided by the adoption of 'sound macroeconomic policies and strong financial systems in member countries' (ie. the IMF's standard 'economic cure for disaster').²⁰

The IMF's resolve to deregulate capital movements was taken behind closed doors (conveniently removed from the public eye and with very little press coverage) barely two weeks before citizens' groups from around the world gathered in late April 1998 in mass demonstrations in Paris opposing the controversial Multilateral Agreement on Investment (MAI) under Organisation for Economic Cooperation and Development (OECD) auspices. This agreement would have granted entrenched rights to banks and multinational corporations overriding national laws on foreign investment as well as derogating the fundamental rights of citizens. The MAI constitutes an act of capitulation by democratic government to banks and multinational corporations.

The timing was right on course: while the approval of the MAI had been temporarily stalled, the proposed deregulation of foreign investment through a more expedient avenue had been officially launched: the amendment of the Articles would for all practical purposes derogate the powers of national governments to regulate foreign investment. It would also nullify the efforts of the worldwide citizens' campaign against the MAI: the deregulation of foreign investment would be achieved ('with a stroke of a pen') without the need for a cumbersome multilateral agreement under OECD or World Trade Organisation (WTO) auspices and without the legal hassle of a global investment treaty entrenched in international law.

Creating a global financial watchdog

As the aggressive scramble for global wealth unfolds and the financial crisis reaches dangerous heights, international banks and speculators are anxious to play a more direct role in shaping financial structures to their advantage as well as 'policing' country-level economic reforms. Free-market conservatives in the United States (associated with the Republican Party) have blamed the IMF for its reckless behaviour. Disregarding the IMF's intergovernmental status, they are demanding greater US control over the IMF. They have also hinted that the IMF should henceforth perform a more placid role (similar to that of the bond-rating agencies such as Moody's or Standard and Poor's) while consigning the financing of the multi-billion-dollar bailouts to the private banking sector.²¹

Discussed behind closed doors in April 1998, a more perceptive initiative (couched in softer language) was put forth by the world's largest banks and investment houses through their Washington mouthpiece (the Institute of International Finance). The banks' proposal consists in the creation of a 'Financial Watchdog' - a so-called 'Private Sector Advisory Council'- with a view to routinely supervising the activities of the IMF. 'The Institute [of International Finance], with its nearly universal membership of leading private financial firms, stands ready to work with the official community to advance this process.'²² Responding to the global banks' initiative, the IMF has called for concrete 'steps to strengthen private sector involvement' in crisis management - what might be interpreted as a 'power-sharing arrangement' between the IMF and the global banks.²³

The international banking community has also set up its own high-level 'Steering Committee on Emerging Markets Finance' integrated by some of the World's most powerful financiers, including William Rhodes, Vice Chairman of Citibank, and Sir David Walker, Chairman of Morgan Stanley. The hidden agenda behind these various initiatives is to gradually transform the IMF from its present status as an intergovernmental body into a full-fledged bureaucracy which more effectively serves the interests of the global banks. More importantly, the banks and speculators want access to the details of IMF negotiations with member governments, which will enable them to carefully position their assaults in financial markets both prior to and in the wake of an IMF bailout agreement.

The global banks (pointing to the need for 'transparency') have called upon 'the IMF to provide valuable insights [on its dealings with national governments] without revealing confidential information...' But what they really want is privileged inside information.²⁴

The ongoing financial crisis is not only conducive to the demise of national State institutions all over the world, it also consists in the step-by-step dismantling (and possible privatisation) of the post-war institutions established by the founding fathers at the Bretton Woods Conference in 1944. In striking contrast with the IMF's present-day destructive role, these institutions were intended by their architects to safeguard the stability of national economies. In the words of Henry Morgenthau, US Secretary of the Treasury, in his closing statement to the Conference (22 July 1944): 'We came here to work out methods which would do away with economic evils - the competitive currency devaluation and destructive impediments to trade - which preceded the present war. We have succeeded in this effort.'²⁵

Have we?

Notes

1. United Nations Development Programme, Human Development Report, 1997, New York, 1997, p. 2.

2. Robert O'Harrow Jr., 'Dow Dives 513 Points, or 6.4', Washington Post, 1 September 1998, p A.

3. Bob Djurdjevic, 'Return looted Russian Assets', Truth in Media's Global Watch, Phoenix, 30 August 1998.

4. See 'Society under Threat- Soros', The Guardian, London, 31 October 1997.

5. Statement at the Meeting of the Group of 15, Malacca, Malaysia, 3 November 1997, quoted in the South China Morning Post, Hong Kong, 3 November 1997.

6. See Michael Hudson and Bill Totten, 'Vulture speculators', Our World, No. 197, Kawasaki, 12 August 1998.

7. Nicola Bullard, Walden Bello and Kamal Malhotra, 'Taming the Tigers: the IMF and the Asian Crisis', Special Issue on the IMF, Focus on Trade, No. 23, Focus on the Global South, Bangkok, March 1998.

8. Korean Federation of Trade Unions, Unbridled Freedom to Sack Workers Is No Solution At All, Seoul, 13 January 1998.

9. Song Jung tae, 'Insolvency of Construction Firms Rises in 1998', Korea Herald, 24 December 1997. Legislation (following IMF directives) was approved which dismantles the extensive powers of the Ministry of Finance while also stripping the Ministry of its financial regulatory and supervisory functions. The financial sector had been opened up, a Financial Supervisory Council under the advice of Western merchant banks arbitrarily decides the fate of Korean banks. Selected banks (the lucky ones) are to be 'made more attractive' by earmarking a significant chunk of the bailout money to finance (subsidise) their acquisition at depressed prices by foreign buyers - i.e., the shopping spree by Western financiers is funded by the government on borrowed money from Western financiers.

10. Michael Hudson, Our World, Kawasaki, 23 December 1997.

11. Michael Hudson, 'Big Bang is Culprit behind Yen's Fall', Our World, No. 187, Kawasaki, 28 July 1998. See also Secretary of State Madeleine K Albright and Japanese Foreign Minister Keizo Obuchi, Joint Press Conference, Ikura House, Tokyo, 4 July 1998, contained in Official Press Release, US Department of State, Washington, 7 July l998.

12. See Nicola Bullard, Walden Bello and Kamal Malhotra, op. cit.

13. On 15 July 1998, the Republican- dominated House of Representatives slashed the Clinton Administration request of $18 billion in additional US funding to the IMF to $3.5 billion. Part of the US contribution to the bailouts would be financed under the Foreign Exchange Stabilisation Fund of the Treasury. The US Congress has estimated the increase in the US public debt and the burden on taxpayers of the US contributions to the Asian bailouts.

14. Financial Times, London, 27-28 December 1997, p. 3.

15. Institute of International Finance, Report of the Multilateral Agencies Group, IIF Annual Report, Washington, 1997.

16. Letter addressed by the Managing Director of the Institute of International Finance Mr Charles Dallara to Mr Philippe Maystadt, Chairman of the IMF Interim Committee, April 1997, quoted in Institute of International Finance, 1997 Annual Report, Washington, 1997.

17. Steven Forbes, 'Why Reward Bad Behaviour', editorial, Forbes Magazine, 4 May 1998.

18. 'Hot money' is speculative capital, 'dirty money' are the proceeds of organised crime which are routinely laundered in the international financial system.

19. International Monetary Fund, Communique of the Interim Committee of the Board of Governors of the International Monetary Fund, Press Release No. 98/14, Washington, 16 April 1998. The controversial proposal to amend its Articles on 'capital account liberalisation' had initially been put forth in April 1997.

20. See Communique of the IMF Interim Committee, Hong Kong, 21 September 1997.

21. See Steven Forbes, op. cit.

22. Institute of International Finance, 'East Asian Crisis Calls for New International Measures, Say Financial Leaders', Press Release, 18 April 1998.

23. IMF, Communique of the Interim Committee of the Board of Governors, 16 April 1998.

24. The IIF proposes that global banks and brokerage houses could for this purpose'be rotated and selected through a neutral process [to ensure confidentiality], and a regular exchange of views [which] is unlikely to reveal dramatic surprises that turn markets abruptly (...). In this era of globalisation, both market participants and multilateral institutions have crucial roles to play; the more they understand each other, the greater the prospects for better functioning of markets and financial stability...' See letter of Charles Dallara, Managing Director of the IIF, to Mr Philippe Maystadt, Chairman of IMF Interim Committee, IIF, Washington, 8 April 1998.

25. Closing Address, Bretton Woods Conference, Bretton Woods, New Hampshire, 22 July 1944. The IMF's present role is in violation of its Articles of Agreement.

Michel Chossudovsky is Professor of Economics, University of Ottawa, and author of The Globalisation of Poverty: Impacts of IMF and World Bank Reforms, Third World Network, Penang and Zed Books, London, 1997. (The Globalisation of Poverty can be ordered from TWN at twn@igc.apc.org)

© Michel Chossudovsky, Ottawa 1998. All rights reserved. To publish or reproduce this text, contact the author at chossudovsky@sprint.ca or fax: 1-514-4256224.

'Financial warfare' triggers global economic crisis

http://www.twnside.org.sg/title/trig-cn.htm

'Financial warfare' triggers global economic crisis

As financial markets continue to tumble and as national economies sink deeper into recession, it is clear that the East Asian crisis has developed into a global economic crisis. The international money managers whose speculative activities have heavily contributed to this development, have been abetted by the IMF with its push for the deregulation of international capital flows. After having whittled away the capacity of national governments to effectively respond to such 'financial warfare', these powerful forces are working to secure even greater control of the Bretton Woods institutions and a more direct role in the shaping of the international financial and economic environment.

by Michel Chossudovsky

---

'PRACTICES of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.' (Franklin D Roosevelt's First Inaugural Address, 1933)

Humanity is undergoing in the post-Cold War era an economic crisis of unprecedented scale leading to the rapid impoverishment of large sectors of the world population. The plunge of national currencies in virtually all major regions of the world has contributed to destabilising national economies while precipitating entire countries into abysmal poverty.

The crisis is not limited to South-East Asia or the former Soviet Union. The collapse in the standard of living is taking place abruptly and simultaneously in a large number of countries. This worldwide crisis of the late 20th century is more devastating than the Great Depression of the 1930s. It has far-reaching geo-political implications; economic dislocation has also been accompanied by the outbreak of regional conflicts, the fracturing of national societies and in some cases the destruction of entire countries. This is by far the most serious economic crisis in modern history.

The existence of a 'global financial crisis' is casually denied by the Western media, its social impacts are downplayed or distorted; international institutions, including the United Nations, deny the mounting tide of world poverty: 'The progress in reducing poverty over the [late] 20th century is remarkable and unprecedented....'¹ The 'consensus' is that the Western economy is 'healthy' and that 'market corrections' on Wall Street are largely attributable to the 'Asian flu' and to Russia's troubled 'transition to a free- market economy'.

Evolution of the global financial crisis

The plunge of Asia's currency markets (initiated in mid- 1997) was followed in October 1997 by the dramatic meltdown of major bourses around the world.

In the uncertain wake of Wall Street's temporary recovery in early 1998 - largely spurred by panic flight out of Japanese stocks - financial markets back-slided a few months later to reach a new dramatic turning point in August with the spectacular nose-dive of the Russian ruble. The Dow Jones plunged by 554 points on 31 August (its second largest decline in the history of the New York Stock Exchange) leading in the course of September to the dramatic meltdown of stock markets around the world. In a matter of a few weeks (from the Dow's 9,337 peak in mid-July), $2,300 billion of 'paper profits' had evaporated from the US stock market.²

The ruble's free-fall had spurred Moscow's largest commercial banks into bankruptcy, leading to the potential takeover of Russia's financial system by a handful of Western banks and brokerage houses. In turn, the crisis has created the danger of massive debt default to Moscow's Western creditors, including the Deutsche and Dresdner banks. Since the outset of Russia's macroeconomic reforms, following the first injection of IMF 'shock therapy' in 1992, some $500 billion worth of Russian assets - including plants of the military industrial complex, infrastructure and natural resources - have been confiscated (through the privatisation programmes and forced bankruptcies) and transferred into the hands of Western capitalists.³ In the brutal aftermath of the Cold War, an entire economic and social system is being dismantled.

'Financial warfare'

The worldwide scramble to appropriate wealth through 'financial manipulation' is the driving force behind this crisis. It is also the source of economic turmoil and social devastation. In the words of renowned currency speculator and billionaire George Soros (who made $1.6 billion of speculative gains in the dramatic crash of the British pound in 1992), 'extending the market mechanism to all domains has the potential of destroying society'.⁴

This manipulation of market forces by powerful actors constitutes a form of financial and economic warfare. No need to recolonise lost territory or send in invading armies. In the late 20th century, the outright 'conquest of nations', meaning the control over productive assets, labour, natural resources and institutions, can be carried out in an impersonal fashion from the corporate boardroom: commands are dispatched from a computer terminal, or a cellphone. The relevant data are instantly relayed to major financial markets - often resulting in immediate disruptions in the functioning of national economies. 'Financial warfare' also applies to complex speculative instruments, including the gamut of derivative trade, forward foreign exchange transactions, currency options, hedge funds, index funds, etc. Speculative instruments have been used with the ultimate purpose of capturing financial wealth and acquiring control over productive assets. In the words of Malaysia's Prime Minister Mahathir Mohamad: 'This deliberate devaluation of the currency of a country by currency traders purely for profit is a serious denial of the rights of independent nations.'⁵

The appropriation of global wealth through this manipulation of market forces is routinely supported by the IMF's lethal macro-economic interventions which act almost concurrently in ruthlessly disrupting national economies all over the world. 'Financial warfare' knows no territorial boundaries; it does not limit its actions to besieging former enemies of the Cold War era. In Korea, Indonesia and Thailand, the vaults of the central banks were pillaged by institutional speculators while the monetary authorities sought in vain to prop up their ailing currencies. In 1997, more than $100 billion of Asia's hard currency reserves had been confiscated and transferred (in a matter of months) into private financial hands. In the wake of the currency devaluations, real earnings and employment plummeted virtually overnight, leading to mass poverty in countries which had in the post-war period registered significant economic and social progress.

The financial scam in the foreign exchange market had destabilised national economies, thereby creating the preconditions for the subsequent plunder of the Asian countries' productive assets by so-called 'vulture foreign investors'.⁶ In Thailand, 56 domestic banks and financial institutions were closed down on the orders of the IMF, and unemployment virtually doubled overnight.⁷ Similarly in Korea, the IMF 'rescue operation' has unleashed a lethal chain of bankruptcies, leading to the outright liquidation of so-called 'troubled merchant banks'. In the wake of the IMF's 'mediation' (put in place in December 1997 after high-level consultations with the World's largest commercial and merchant banks), 'an average of more than 200 companies [were] shut down per day (...) 4,000 workers every day were driven out onto [the] streets as unemployed'.⁸ Resulting from the credit freeze and 'the instantaneous bank shut-down', some 15,000 bankruptcies are expected in 1998, including 90% of Korea's construction companies (with combined debts of $20 billion to domestic financial institutions).⁹ South Korea's Parliament has been transformed into a 'rubber stamp'. Enabling legislation is enforced through 'financial blackmail': if the legislation is not speedily enacted according to the IMF's deadlines, the disbursements under the bailout will be suspended, with the danger of renewed currency speculation looming.

In turn, the IMF-sponsored 'exit programme' (i.e., forced bankruptcy) has deliberately contributed to fracturing the chaebols, which are now invited to establish 'strategic alliances with foreign firms' (meaning their eventual control by Western capital). With the devaluation, the cost of Korean labour had also tumbled: 'It's now cheaper to buy one of these [high- tech] companies than [to] buy a factory - and you get all the distribution, brand-name recognition and trained labour force free in the bargain....'¹⁰

The demise of central banking

In many regards, this worldwide crisis marks the demise of central banking, meaning the derogation of national economic sovereignty and the inability of the national State to control money creation on behalf of society. In other words, privately held money reserves in the hands of 'institutional speculators' far exceed the limited capabilities of the world's central banks. The latter acting individually or collectively are no longer able to fight the tide of speculative activity. Monetary policy is in the hands of private creditors who have the ability to freeze State budgets, paralyse the payments process, thwart the regular disbursement of wages to millions of workers (as in the former Soviet Union) and precipitate the collapse of production and social programmes. As the crisis deepens, speculative raids on central banks are extending into China, Latin America and the Middle East with devastating economic and social consequences.

This ongoing pillage of central bank reserves, however, is by no means limited to developing countries. It has also hit several Western countries including Canada and Australia where the monetary authorities have been incapable of stemming the slide of their national currencies. In Canada, billions of dollars were borrowed from private financiers to prop up central bank reserves in the wake of speculative assaults. In Japan - where the yen has tumbled to new lows - 'the Korean scenario' is viewed (according to economist Michael Hudson) as a 'dress rehearsal' for the takeover of Japan's financial sector by a handful of Western investment banks. The big players are Goldman Sachs, Morgan Stanley, Deutsche Morgan Grenfell, among others, who are buying up Japan's bad bank loans at less than 10% of their face value. In recent months, both US Secretary of the Treasury Robert Rubin and Secretary of State Madeleine K Albright have exerted political pressure on Tokyo, insisting 'on nothing less than an immediate disposal of Japan's bad bank loans - preferably to US and other foreign "vulture investors" at distress prices. To achieve their objectives, they are even pressuring Japan to rewrite its constitution, restructure its political system and cabinet and redesign its financial system.... Once foreign investors gain control of Japanese banks, these banks will move to take over Japanese industry...'¹¹

Creditors and speculators

The world's largest banks and brokerage houses are both creditors and institutional speculators. In the present context, they contribute (through their speculative assaults) to destabilising national currencies, thereby boosting the volume of dollar denominated debts. They then reappear as creditors with a view to collecting these debts. Finally, they are called in as 'policy advisers' or consultants in the IMF- World Bank-sponsored 'bankruptcy programmes' of which they are the ultimate beneficiaries. In Indonesia, for instance, amidst street rioting and in the wake of Suharto's resignation, the privatisation of key sectors of the Indonesian economy ordered by the IMF was entrusted to eight of the world's largest merchant banks, including Lehman Brothers, Credit Suisse-First Boston, Goldman Sachs and UBS/SBC Warburg Dillon Read.¹² The world's largest money managers set countries on fire and are then called in as firemen (under the IMF 'rescue plan') to extinguish the blaze. They ultimately decide which enterprises are to be closed down and which are to be auctioned off to foreign investors at bargain prices.

Who funds the IMF bailouts?

Under repeated speculative assaults, Asian central banks had entered into multi-billion-dollar contracts (in the forward foreign exchange market) in a vain attempt to protect their currency. With the total depletion of their hard currency reserves, the monetary authorities were forced to borrow large amounts of money under the IMF bailout agreement. Following a scheme devised during the Mexican crisis of 1994- 95, the bailout money, however, is not intended 'to rescue the country '; in fact the money never entered Korea, Thailand or Indonesia; it was earmarked to reimburse the 'institutional speculators', to ensure that they would be able to collect their multi-billion-dollar loot. In turn, the Asian tigers have been tamed by their financial masters. Transformed into lame ducks, they have been 'locked up' into servicing these massive dollar-denominated debts well into the third millennium.

But 'where did the money come from' to finance these multi- billion-dollar operations? Only a small portion of the money comes from IMF resources: starting with the 1995 Mexican bailout, G7 countries, including the US Treasury, were called upon to make large lump-sum contributions to these IMF- sponsored rescue operations, leading to significant hikes in the levels of public debt.¹³ Yet in an ironic twist, the issuing of US public debt to finance the bailouts is underwritten and guaranteed by the same group of Wall Street merchant banks involved in the speculative assaults.

In other words, those who guarantee the issuing of public debt (to finance the bailout) are those who will ultimately appropriate the loot (e.g., as creditors of Korea or Thailand) - i.e., they are the ultimate recipients of the bailout money (which essentially constitutes a 'safety net' for the institutional speculator). The vast amounts of money granted under the rescue packages are intended to enable the Asian countries to meet their debt obligations with those same financial institutions which contributed to precipitating the breakdown of their national currencies in the first place. As a result of this vicious circle, a handful of commercial banks and brokerage houses have enriched themselves beyond bounds; they have also increased their stranglehold over governments and politicians around the world.

Strong economic medicine

Since the 1994-95 Mexican crisis, the IMF has played a crucial role in shaping the 'financial environment' in which the global banks and money managers wage their speculative raids. The global banks are craving for access to inside information. Successful speculative attacks require the concurrent implementation on their behalf of 'strong economic medicine' under the IMF bailout agreements. The 'big six' Wall Street commercial banks (including Chase, Bank America, Citicorp and J P Morgan) and the 'big five' merchant banks (including Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney) were consulted on the clauses to be included in the bailout agreements. In the case of Korea's short-term debt, Wall Street's largest financial institutions were called in on Christmas Eve (24 December 1997) for high-level talks at the Federal Reserve Bank of New York.¹⁴

The global banks have a direct stake in the decline of national currencies.

In April 1997, barely two months before the onslaught of the Asian currency crisis, the Institute of International Finance (IIF), a Washington-based think-tank representing the interests of some 290 global banks and brokerage houses, had 'urged authorities in emerging markets to counter upward exchange rate pressures where needed...'¹⁵ This request (communicated in a formal letter to the IMF) hints in no uncertain terms that the IMF should advocate an environment in which national currencies are allowed to slide.¹⁶

Indonesia was ordered by the IMF to unpeg its currency barely three months before the rupiah's dramatic plunge. In the words of American billionaire and presidential candidate Steve Forbes: 'Did the IMF help precipitate the crisis? This agency advocates openness and transparency for national economies, yet it rivals the CIA in cloaking its own operations. Did it, for instance, have secret conversations with Thailand, advocating the devaluation that instantly set off the catastrophic chain of events? Did IMF prescriptions exacerbate the illness? These countries' moneys were knocked down to absurdly low levels.'¹⁷

Deregulating capital movements

The international rules regulating the movements of money and capital (across international borders) contribute to shaping the 'financial battlefields' on which banks and speculators wage their deadly assaults. In their worldwide quest to appropriate economic and financial wealth, global banks and multinational corporations have actively pressured for the outright deregulation of international capital flows, including the movement of 'hot' and 'dirty' money.¹⁸ Caving in to these demands (after hasty consultations with G7 finance ministers), a formal verdict to deregulate capital movements was taken by the IMF Interim Committee in Washington in April 1998. The official communique stated that the IMF will proceed with the amendment of its Articles with a view to 'making the liberalisation of capital movements one of the purposes of the Fund and extending, as needed, the Fund's jurisdiction for this purpose'.¹⁹ The IMF managing director, Mr Michel Camdessus, nonetheless conceded in a dispassionate tone that 'a number of developing countries may come under speculative attacks after opening their capital account' while reiterating (ad nauseam) that this can be avoided by the adoption of 'sound macroeconomic policies and strong financial systems in member countries' (ie. the IMF's standard 'economic cure for disaster').²⁰

The IMF's resolve to deregulate capital movements was taken behind closed doors (conveniently removed from the public eye and with very little press coverage) barely two weeks before citizens' groups from around the world gathered in late April 1998 in mass demonstrations in Paris opposing the controversial Multilateral Agreement on Investment (MAI) under Organisation for Economic Cooperation and Development (OECD) auspices. This agreement would have granted entrenched rights to banks and multinational corporations overriding national laws on foreign investment as well as derogating the fundamental rights of citizens. The MAI constitutes an act of capitulation by democratic government to banks and multinational corporations.

The timing was right on course: while the approval of the MAI had been temporarily stalled, the proposed deregulation of foreign investment through a more expedient avenue had been officially launched: the amendment of the Articles would for all practical purposes derogate the powers of national governments to regulate foreign investment. It would also nullify the efforts of the worldwide citizens' campaign against the MAI: the deregulation of foreign investment would be achieved ('with a stroke of a pen') without the need for a cumbersome multilateral agreement under OECD or World Trade Organisation (WTO) auspices and without the legal hassle of a global investment treaty entrenched in international law.

Creating a global financial watchdog

As the aggressive scramble for global wealth unfolds and the financial crisis reaches dangerous heights, international banks and speculators are anxious to play a more direct role in shaping financial structures to their advantage as well as 'policing' country-level economic reforms. Free-market conservatives in the United States (associated with the Republican Party) have blamed the IMF for its reckless behaviour. Disregarding the IMF's intergovernmental status, they are demanding greater US control over the IMF. They have also hinted that the IMF should henceforth perform a more placid role (similar to that of the bond-rating agencies such as Moody's or Standard and Poor's) while consigning the financing of the multi-billion-dollar bailouts to the private banking sector.²¹

Discussed behind closed doors in April 1998, a more perceptive initiative (couched in softer language) was put forth by the world's largest banks and investment houses through their Washington mouthpiece (the Institute of International Finance). The banks' proposal consists in the creation of a 'Financial Watchdog' - a so-called 'Private Sector Advisory Council'- with a view to routinely supervising the activities of the IMF. 'The Institute [of International Finance], with its nearly universal membership of leading private financial firms, stands ready to work with the official community to advance this process.'²² Responding to the global banks' initiative, the IMF has called for concrete 'steps to strengthen private sector involvement' in crisis management - what might be interpreted as a 'power-sharing arrangement' between the IMF and the global banks.²³

The international banking community has also set up its own high-level 'Steering Committee on Emerging Markets Finance' integrated by some of the World's most powerful financiers, including William Rhodes, Vice Chairman of Citibank, and Sir David Walker, Chairman of Morgan Stanley. The hidden agenda behind these various initiatives is to gradually transform the IMF from its present status as an intergovernmental body into a full-fledged bureaucracy which more effectively serves the interests of the global banks. More importantly, the banks and speculators want access to the details of IMF negotiations with member governments, which will enable them to carefully position their assaults in financial markets both prior to and in the wake of an IMF bailout agreement.

The global banks (pointing to the need for 'transparency') have called upon 'the IMF to provide valuable insights [on its dealings with national governments] without revealing confidential information...' But what they really want is privileged inside information.²⁴

The ongoing financial crisis is not only conducive to the demise of national State institutions all over the world, it also consists in the step-by-step dismantling (and possible privatisation) of the post-war institutions established by the founding fathers at the Bretton Woods Conference in 1944. In striking contrast with the IMF's present-day destructive role, these institutions were intended by their architects to safeguard the stability of national economies. In the words of Henry Morgenthau, US Secretary of the Treasury, in his closing statement to the Conference (22 July 1944): 'We came here to work out methods which would do away with economic evils - the competitive currency devaluation and destructive impediments to trade - which preceded the present war. We have succeeded in this effort.'²⁵

Have we?

Notes

1. United Nations Development Programme, Human Development Report, 1997, New York, 1997, p. 2.

2. Robert O'Harrow Jr., 'Dow Dives 513 Points, or 6.4', Washington Post, 1 September 1998, p A.

3. Bob Djurdjevic, 'Return looted Russian Assets', Truth in Media's Global Watch, Phoenix, 30 August 1998.

4. See 'Society under Threat- Soros', The Guardian, London, 31 October 1997.

5. Statement at the Meeting of the Group of 15, Malacca, Malaysia, 3 November 1997, quoted in the South China Morning Post, Hong Kong, 3 November 1997.

6. See Michael Hudson and Bill Totten, 'Vulture speculators', Our World, No. 197, Kawasaki, 12 August 1998.

7. Nicola Bullard, Walden Bello and Kamal Malhotra, 'Taming the Tigers: the IMF and the Asian Crisis', Special Issue on the IMF, Focus on Trade, No. 23, Focus on the Global South, Bangkok, March 1998.

8. Korean Federation of Trade Unions, Unbridled Freedom to Sack Workers Is No Solution At All, Seoul, 13 January 1998.

9. Song Jung tae, 'Insolvency of Construction Firms Rises in 1998', Korea Herald, 24 December 1997. Legislation (following IMF directives) was approved which dismantles the extensive powers of the Ministry of Finance while also stripping the Ministry of its financial regulatory and supervisory functions. The financial sector had been opened up, a Financial Supervisory Council under the advice of Western merchant banks arbitrarily decides the fate of Korean banks. Selected banks (the lucky ones) are to be 'made more attractive' by earmarking a significant chunk of the bailout money to finance (subsidise) their acquisition at depressed prices by foreign buyers - i.e., the shopping spree by Western financiers is funded by the government on borrowed money from Western financiers.

10. Michael Hudson, Our World, Kawasaki, 23 December 1997.

11. Michael Hudson, 'Big Bang is Culprit behind Yen's Fall', Our World, No. 187, Kawasaki, 28 July 1998. See also Secretary of State Madeleine K Albright and Japanese Foreign Minister Keizo Obuchi, Joint Press Conference, Ikura House, Tokyo, 4 July 1998, contained in Official Press Release, US Department of State, Washington, 7 July l998.

12. See Nicola Bullard, Walden Bello and Kamal Malhotra, op. cit.

13. On 15 July 1998, the Republican- dominated House of Representatives slashed the Clinton Administration request of $18 billion in additional US funding to the IMF to $3.5 billion. Part of the US contribution to the bailouts would be financed under the Foreign Exchange Stabilisation Fund of the Treasury. The US Congress has estimated the increase in the US public debt and the burden on taxpayers of the US contributions to the Asian bailouts.

14. Financial Times, London, 27-28 December 1997, p. 3.

15. Institute of International Finance, Report of the Multilateral Agencies Group, IIF Annual Report, Washington, 1997.

16. Letter addressed by the Managing Director of the Institute of International Finance Mr Charles Dallara to Mr Philippe Maystadt, Chairman of the IMF Interim Committee, April 1997, quoted in Institute of International Finance, 1997 Annual Report, Washington, 1997.

17. Steven Forbes, 'Why Reward Bad Behaviour', editorial, Forbes Magazine, 4 May 1998.

18. 'Hot money' is speculative capital, 'dirty money' are the proceeds of organised crime which are routinely laundered in the international financial system.

19. International Monetary Fund, Communique of the Interim Committee of the Board of Governors of the International Monetary Fund, Press Release No. 98/14, Washington, 16 April 1998. The controversial proposal to amend its Articles on 'capital account liberalisation' had initially been put forth in April 1997.

20. See Communique of the IMF Interim Committee, Hong Kong, 21 September 1997.

21. See Steven Forbes, op. cit.

22. Institute of International Finance, 'East Asian Crisis Calls for New International Measures, Say Financial Leaders', Press Release, 18 April 1998.

23. IMF, Communique of the Interim Committee of the Board of Governors, 16 April 1998.

24. The IIF proposes that global banks and brokerage houses could for this purpose'be rotated and selected through a neutral process [to ensure confidentiality], and a regular exchange of views [which] is unlikely to reveal dramatic surprises that turn markets abruptly (...). In this era of globalisation, both market participants and multilateral institutions have crucial roles to play; the more they understand each other, the greater the prospects for better functioning of markets and financial stability...' See letter of Charles Dallara, Managing Director of the IIF, to Mr Philippe Maystadt, Chairman of IMF Interim Committee, IIF, Washington, 8 April 1998.

25. Closing Address, Bretton Woods Conference, Bretton Woods, New Hampshire, 22 July 1944. The IMF's present role is in violation of its Articles of Agreement.

Michel Chossudovsky is Professor of Economics, University of Ottawa, and author of The Globalisation of Poverty: Impacts of IMF and World Bank Reforms, Third World Network, Penang and Zed Books, London, 1997. (The Globalisation of Poverty can be ordered from TWN at twn@igc.apc.org)

© Michel Chossudovsky, Ottawa 1998. All rights reserved. To publish or reproduce this text, contact the author at chossudovsky@sprint.ca or fax: 1-514-4256224.

KEBERANIAN PEMERINTAH

http://www.suarakarya-online.com/news.html?id=119585

Frans Seda:
Pemerintah Tak Punya KEBERANIAN


Sejak awal bulan ini, bangsa Indonesia kembali mengalami berbagai persoalan yang menggugat ikatan kesatuan anak bangsa sebagai sebuah Negara Kesatuan Republik Indonesia.

Dari soal Papua, Aceh, ditandatanganinya kesepakatan damai antara pemerintah dengan GAM, soal asumsi dalam RAPBN 2006 yang jauh melenceng dari kondisi riil, sampai terakhir melorotnya nilai tukar rupiah terhadap dolar AS. Dolar AS belakangan telah menyentuh kisaran Rp 10.500 per dolarnya.

Dalam rangka mencari solusi atas berbagai masalah yang dihadapi Indonesia wartawan Suara Karya, Kentos R. Artoko dan Hedi Suryono mewawancarai Frans Seda, mantan menteri termuda era Soekarno, mantan Menteri Perkebunan dan mantan Menteri Keuangan di era Soeharto. Berikut petikannya:

Menurut Bapak, bagaimana kondisi perekonomian nasional belakangan ini?

Saat ini, benar kita sedang terpuruk. Akan tetapi bukan berarti kita tidak bisa bangkit dari masalah-masalah seperti fluktuasi nilai rupiah yang tidak kunjung stabil, melambungnya harga minyak dunia, soal Amerika Serikat dan bank sentralnya yang menaikkan suku bunga, dan larinya sejumlah modal (capital flight-Red) ke luar negeri.

Pemerintahan Susilo Bambang Yudhoyono (SBY) sekarang ini memiliki tiga visi dan misi. Yaitu, menciptakan Indonesia yang aman dan damai, menciptakan Indonesia yang adil dan demokratis, serta meningkatkan kesejahteraan rakyat.

Saya menilai, agenda ini terlalu umum, tidak menggigit dan tidak menyentuh akar permasalahan yang ada. Sebenarnya yang perlu dilakukan oleh SBY untuk dapat melaksanakan semua hal tersebut adalah KEBERANIAN.

Semuanya harus ditulis dengan huruf besar. Sekarang masyarakat melupakan adanya keberanian dalam diri Presiden SBY, presiden kita ini.

Bagaimana komentar Bapak tentang asumsi RAPBN yang tidak berdasar pada kondisi riil?

Masalah RAPBN 2006 yang penting menurut saya bagaimana asumsi itu dipakai menjadi dasar dalam menjalankan kebijakan di berbagai sektor.

Yang paling penting, adalah masalah Belanja Negara. Untuk apa Rp 500 triliun lebih pendapatan negara itu dipergunakan. Dalam sebuah negara yang penting itu adalah soal belanja negara, uang yang digunakan itu untuk apa dan kemana saja larinya.

Dalam sebuah negara, proses pembuatan RAPBN itu seharusnya parlemen membicarakan dan memutuskan bersama Presiden tentang belanja negara itu. Kemudian Presiden memberikan instruksi kemana saja sumber dana negara digunakan dan dibelanjakan. Kabinet bertugas untuk mencari sumber-sumber tersebut.

Apabila penting untuk dibentuk undang-undang, maka pemerintah dalam hal ini Presiden harus membuatkan legalitas undang-undangnya. Ada empat hal yang dapat digali sebagai sumber pemasukan negara, yaitu pajak dalam negeri, privatisasi dan penjualan aset negara, pinjaman dalam atau luar negeri, dan terakhir adalah defisit negara.

Mengenai pinjaman dan defisit, pemerintah cukup menetapkan plafon saja, tentu setelah memperhitungkan posisi hutang, kas, defisit dan akibat dari kondisi fiskal-moneter.

Masalah asumsi bagaimana pak?

RAPBN 2006, seperti dikemukakan oleh SBY dalam pandangan saya kok ndak ada yang baru sama sekali, kecuali penetapan asumsi yang tidak realistis itu tadi ha..ha..ha.

Pemerintah, sama sekali tidak memikirkan krisis. Jadilah krisis bahan bakar minyak (BBM) dan krisis ekonomi. Secara umum saya melihat berbagai krisis ini ditangani secara tradisional seperti peningkatan subsidi, kompensasi dan distribusi langsung.

Mereka tidak belajar dari penerapan dan kegagalan social safety net di masal lalu. Tidak ada kebijakan baru dalam penanganan krisis!

Krisis bisa berlanjut?

Saya kira begitu. Jika krisis multidimensi ini belum selesai dan makin meluas, maka hal tersebut harus tercermin dalam RAPBN. Saya pernah mengemukakan di masa lalu, bahwa sebuah APBN adalah rencana kerja pemerintah yang termanifestasikan dalam angka-angka.

Rencana kerja ini harusnya realistis dan diarahkan pada kenyataan dan masalah yang dihadapi. Misalnya, krisis BBM dihadapi secara tradisional. Kondisinya sekarang kita bukan negera net exporter, tapi sebaliknya kita sudah menjadi negara net importer.

Jadi mustahil kalau menetapkan asumsi 40 dolar AS per barel. Karena harga minyak dunia cenderung terus naik. Salah seorang kolega saya di Jerman mengemukakan bahwa harga minyak dunia bakal melambung sampai 100 dolar AS per barel.

Apabila prediksi ini benar, maka pemerintahan SBY keliru dan sangat keblinger kalau menetapkan harga 40 dolar AS. Memang, minyak itu tergantung season, tapi sekarang patokan tersebut sudah dihilangkan dalam ekonomi.

Jadi menurut Bapak asumsi harga minyaknya harus 100 dolar AS, begitu, kalau ini yang dilakukan bukankah harga rupiah malah makin melorot?

Ya, itu tadi patokan yang dibuat harus realistis. Kalau harga yang dibuat rendah maka biaya yang harus ditanggung oleh pemerintah juga makin meningkat. Sekarang masalahnya, pemerintah punya uang nggak untuk menutup masalah ini.

Untuk masalah ini saya mengusulkan 4 hal. Pertama, menghapuskan subsidi BBM. Kedua, memberikan bantuan terhadap kebutuhan rakyat kecil seperti minyak tanah dan solar lewat biaya dari APBN. Ketiga, mempropagandakan alternatif pengganti minyak seperti biodiesel dan batubara atau sejenisnya. Keempat, membentuk direktorat energi alternatif tadi, bekerjasama dengan BPPT atau lembaga sejenis lainnya.

Jadi jatuhnya rupiah ini disebabkan karena faktor BBM itu?

Bukan hanya itu, The Fed yang menaikkan suku bunga juga menjadi faktor pemicu. Sebab dengan dinaikkannya suku bunga, maka bakal banyak dana dalam bentuk dolar AS kembali ke negara itu. Overheating economy juga merupakan faktor lain.

Dan yang tidak kalah pentingnya adalah kelemahan dalam fundamental perekonomian nasional yang belum bisa diatasi dari waktu ke waktu.

Bisa lebih diperjelas?

Fundamental ekonomi Indonesia itu kan sebenarnya hanya dua, yaitu pertumbuhan ekonomi dan besarnya kesenjangan yang terjadi antara kaya dan miskin. Jadi perkuat dulu fundamental perekonomian, baru kemudian melihat tabungan kita apakah cukup untuk melakukan intervensi di pasar uang atau tidak.

Sekarang ini, pemerintah sudah menyuntikkan dana tidak kurang dari 4 miliar dolar AS untuk mengembalikan rupaih pada posisi semula. Tapi, dalam kenyataan bukannya rupiah naik, tapi rupiah malah makin turun. Hal tersebut disebabkan karena pasar uang sudah tidak percaya lagi pada pemerintah.

Stimulus apa yang perlu dilakukan untuk mencegah lebih parahnya penurunan rupiah?

Caranya dengan menetapkan 4 (empat) kebijakan yang saya utarakan tadi; meningkatkan pajak, privatisasi, pinjaman dan defisit. Insentif lainnya bisa dilihat per kasus, misalya menghapuskan hambatan investasi, hapuskan hambatan perdagangan dan memberikan nilai lebih berinvestasi di Indonesia.

Stimulus lainnya?

Stimulus lainnya yang bisa digunakan untuk mengembangkan perekonomian bangsa adalah mengelola dengan baik defisit negera. Jadi bukan sekadar persentase dari Gross Domestic Product, tapi juga sebagai sumber keuangan untuk membiayai pembangunan atau pertumbuhan ekonomi. Misalnya, manajemen Surat Utang Negara (SUN) sebagai sumber pembiayaan, manajemen pembayaran utang, privatisasi dan yang tidak kalah penting adalah manajemen perimbangan keuangan pusat dan daerah.

Semua manajemen tadi ke depan diarahkan untuk mengatasi krisis nasional, mendongkrak pertumbuhan ekonomi, memerangi pengangguran dan meningkatkan pembangunan pertanian. Meskipun pembangunan pertanian tidak populer, tapi signifikan untk mendorong pertumbuhan domestik secara stabil. Bersama investasi dan ekspor, maka ekonomi Indonesia akan kuat.

Ada usul konkret dari situasi ini?

Saya mengusulkan agar selama krisis terjadi, introduksi dari sistem Unified Budget System (UBS) ditangguhkan. Meneg PPN/Ketua Bappenas Sri Mulyani, baru-baru ini mengusulkan untuk menerapkan sitem UBS tersebut.

Sebenarnya sistem ini bukan baru. UBS bermaksud untuk menyatukan anggaran rutin dan anggaran pembangunan, agar tidak terjadi double budget atau anggaran dobel.

Terjadinya pengeluaran dobel itu memang perlu dicegah, tapi tidak perlu mengganti sistem dan mengintroduksi sebuah sistem baru dalam kondisi negara seperti saat ini.

Bapak optimis atau pesimis dengan kondisi perekonomian kedepan?

Saya sejak zaman Soekarno dulu selalu optimis. Bahkan yang mengundang Dana Moneter Internasional (IMF) dan Bank Dunia ke Indonesia itu saya. Saya katakan kepada mereka, apa mereka mau bantu kita, sementara kita ini bangsa yang miskin. Ternyata mereka mau membantu. Tapi, membantu bukan dalam arti kita harus menurut atau didikte oleh mereka.***

Who’ll bail out the IMF?

http://www.globaldashboard.org/2009/01/23/wholl-bail-out-the-imf/

Who’ll bail out the IMF? Jules Evans

January 23, 2009 | More on Economics and development, Global system, Key Posts, London Summit | No comments

David Cameron yesterday warned that the UK could be forced to go cap in hand to the IMF, as it did in 1976 under chancellor Denis Healey. (This, by the way, at the launch of a new programme at Demos about ‘progressive conservatism’. Et tu, Demos?)

The question is, would the IMF have the cash. Click on more to read a story I recently wrote for my mag, www.emeafinance.com, which looks at the risk of the IMF running out of money in the next 18 months, and asks what the chances are of it receiving more funds from cash-rich G20 governments (answer: slim).

Who’ll bail out the IMF?

In January 2008, the IMF’s managing director, Dominique Strauss-Kahn, sent out a confidential document to the fund’s 2,400 full-time staff, telling them to get ready for the axe.

The memo said the staff should prepare for the “trauma” of sizeable downsizing, with around a sixth of the staff to be fired, and the staff budget of the fund to be reduced by US$100mn. “This is not a good time for staff”, the memo read. “Their expectation of a full career at the fund in exchange for their unflinching dedication and loyalty is in question.”

The fund had lost the great influence and power it had enjoyed during the 1990s, when it leant billions of dollars to crisis-hit Asian economies. Its power, then, was symbolised in the famous photo of then IMF director Michel Camdessus standing with his arms crossed like a strict schoolmaster, while the elderly Indonesian President Suharto bent over a desk to sign a humiliatingly-punitive IMF bail-out.

Emerging market governments learnt the lesson of that time. Many of them built up huge foreign exchange (FX) reserves, and bought back much of their existing public debt, so that they would never have to genuflect before the IMF. It gradually faded from the headlines and from the markets. “Some of my younger staff don’t even know what the words IMF stand for,” says Richard Luddington, vice-chairman of general capital markets at UBS.

Ousmene Mandeng, head of public sector investment advisory at Ashmore Investment Management, says: “I used to work at the IMF until October. When I left, I had the impression the fund would never play the role it once had in 1998. In hindsight, it seems absurd.”

Busiest month ever
A lot can change in a year. November was the busiest ever month for the IMF. It lent US$41.8bn in bail-outs for Hungary, Ukraine, Iceland and Pakistan, and is in talks to provide further big loans to Turkey, Belarus, Latvia and Serbia, with other countries, such as Bulgaria, Romania, Estonia, Lithuania and Poland also potential clients in the coming months.

At the end of October, the fund also launched a new US$200bn short-term facility, to help countries that have “a very strong track record but are nevertheless facing pressure on its balance of payments”, in the words of Strauss-Kahn. The facility would allow such countries to draw down 500% of their IMF quota (ie, the amount they contribute to the IMF annually) up to three times a year.

Having been criticised in the past for being too slow to respond to crises, and for imposing excessively harsh conditions on its loans, the IMF has drawn some praise for the speed and size of its November bail-outs.

At the beginning of the month, it provided €12.3bn to Hungary to help it cope with an FX crisis provoked by the government’s high levels of debt, high fiscal deficit and high current account deficit. The loan was part of a €24bn coordinated package with the World Bank and the EU. It was the first IMF bail-out of a stet country since the UK borrowed £2.3bn from the IMF in 1976.

Nigel Rendell, senior emerging markets analyst at RBC Capital Markets, says: “It was a huge amount of money, way above Hungary’s quota. Hungary probably didn’t need that much, but it was better too much than too little. I think both the Fund and the EU wanted to send a signal to speculators that they were ready to stand by other vulnerable markets in the region.”

The conditions were that the government further reduce its deficit, which it was trying to do anyway, via a wage freeze for public sector employees and an elimination of a bonus for pensioners. The bail-out also commits the government to recapitalising its banking sector.

This has already helped give some support to the forint, and has lowered the CDS spreads on Hungary’s sovereign debt by around 100 basis points to 380bp, from a high of over 600.

However, the cuts on public spending, and an expected steep drop in bank lending next year, mean the country is heading for a severe recession, with analysts predicting that GDP will contract by between 1 and 5% next year. Workers marched on the parliament in the last weekend of November protesting against the pay-cuts. And the banking system is likely to come under greater pressure if the forint devalues further.

The IMF’s US$16.4bn bail-out for Ukraine was, if anything, even more generous considering the size of Ukraine’s economy. The conditions were relatively relaxed, demanding that the National Bank has a more flexible currency strategy, which many analysts had been saying was necessary for some time.

This time, the IMF acted without the EU, which caused concern among some investors in Ukraine that the country would find itself on the wrong side of what Ukrainian prime minister, Yulia Timoshenko, called “a new financial Iron Curtain”.

Still, the IMF on its own acted very quickly to intervene and support Ukraine. And the government is, according to reports, relying heavily on the fund’s advice to guide its own rather slow responses to the crisis.

Ousmene Mandeng of Ashmore says: “I was surprised by the size of the Ukraine package. Why didn’t the government use its own reserves? Maybe it hadn’t been able to formulate its own policy measures. It might give the IMF some credibility, to be called in like that, but it undermines the authority of the Ukraine government, which could have coped with the crisis on its own.”

The stigma of IMF help
In some ways, calling in the IMF can be a political as well as an economic life-saver for struggling governments. Peter Elam Hakansson, the founder of East Capital, which is one of the biggest portfolio investors in the CEE region, says: “It allows governments to blame the fund for difficult policy measures like freezing wages and cutting government spending. And indeed, governments in Hungary, Ukraine, Latvia and elsewhere have been doing just that.”

But blaming the IMF for policy measures ultimately weakens a government’s own authority. It is, in effect, admitting that a country does not have the strength to be responsible for itself, that it is a colony rather than an autonomous sovereignty. This is a great blow to the prestige of some emerging markets, who a year ago were boasting about how much they had matured since the 1998 crisis.

Some emerging market governments can legitimately boast about no longer needing the IMF’s help. Several CEE countries are in good shape, such as Slovakia and the Czech Republic. Russia is also is excellent fiscal shape, thanks to its prudent build-up of petro-dollars during the boom years. Kazakhstan is also sufficiently wealthy to be able to clear up its financial system on its own.

What this means is a two-tier system is growing up within emerging markets – those countries which are capable of governing themselves, and those which need external assistance. And there is a definite stigma to being in the second group.
Mohammad El-Erian, co-CEO of Pimco and a former director at the IMF, says: “Some countries have self-insurance, and others have none. So emerging markets have gone from a homogenous bloc to one which has become very country-specific. It might not even make sense to talk about ‘emerging markets’ as an asset class that includes both China and Seychelles”

The two-tier system within emerging markets will be exacerbated by the fact that some governments, such as China, the US, UK, Russia and UAE, can afford multi-billion-dollar fiscal stimulus plans, while those countries that seek IMF assistance will be forced to cut public spending just as their countries head into recession.

Dennis Leech, an economics professor at the UK’s Warwick University who covers the IMF, says: “The IMF has told Hungary, Ukraine, Pakistan and Iceland to balance their budgets and cut expenditure. Meanwhile the US, the country with the most voting power in the IMF, is desperately trying to spend its way out of recession. There’s a clear double standard.”

The stigma of seeking help from the IMF is perhaps what has prevented any country so far from drawing some funds from the short-term lending facility. Mandeng says: “There’s a first mover issue there – who wants to be first to take advantage of the facility, and what kind of group will you be in if you participate? What kind of signal does that send to investors?”

IMF funds ‘inadequate’, but G20 governments unwilling to help
There is also the issue of how much help the IMF can give in 2009. The fund has reserves of US$200bn, but if the fund keeps spending like it did in November, this won’t last six months.

In November, Strauss-Kahn sent a letter to the members of the G20 saying that the IMF’s resources were “inadequate” to cope with the crisis, and calling for more funds to be made available. He wrote: “there may be concerns in markets that the official resources needed to stabilize the situation are inadequate, which could exacerbates the problem as investors head for the exits.”

Strauss-Kahn later said the IMF needed at least another US$100bn to help countries through the next six months. Where would this money come from?

Western governments have been hoping that oil-rich Gulf countries would foot the bill. In November, UK prime minister, Gordon Brown, went on a tour of the Middle East, trying to convince Middle Eastern governments to bail out the world economy, via a huge capital injection into the IMF. He said: “The oil producing countries, who have generated over US$1tn from higher oil prices in recent years, are in a position to contribute” to an expanded fund.

Brown then organised a G20 meeting in Washington on November 15, which was heralded as a ‘new Bretton Woods’, comparable in significance to the first Bretton Woods conference in 1944 that created the IMF and World Bank. The meeting, Brown briefed journalists, would lead to a new, improved IMF, with a greater global role and increased capital.

However, both the Middle East roadshow and the G20 meetings were complete flops. No emerging market country showed itself willing to commit any more capital to the IMF, and the ‘new Bretton Woods’ conference turned out to be a damp squib without the participation of the president-elect of the US, Barack Obama.

Ariel Buira, former executive director of the IMF, says: “The G20 meeting in November was not a big success. The Saudis said ‘thanks, but no thanks’. China asked what was in it for them. The Brazilians said they didn’t want merely to be invited to G7 meetings for coffee.”

Japan’s government did come forward and say it could commit a further US$100bn to the fund by issuing long-term bonds. But the announcement immediately led to a rise in Japan’s government bond spreads, and with the country heading into recession, the government might think twice about its generosity.

Reforming the IMF
There is a feeling among the more powerful and wealthy emerging market governments that if western governments really want them to bail out the IMF, then the IMF has to be radically overhauled.

In early November, the Bric countries – Brazil, Russia, India and China – held their own summit of finance ministers before the G20, at which Brazil’s finance minister, Guido Mantega, declared: “The Brics and the G4 (South Africa, Brazil, China and India) …have been managed by institutions from the 1940s and 1950s, when the US and the European countries represented the bulk of the global economy. Today the emerging nations represent 75% of global growth, but we have minority representation” in the G7 and the IMF.

Mantega said Bric countries were ready to add money to the fund, but only in return for a greater say in its governance: “None of the Brics said they are not prepared to put funds in, they have money, they have reserves. They only want greater participation. It is currently the fund that does not want to give us a greater share.”

Most analysts agree that the IMF has what El-Erian of Pimco calls “a massive legitimacy problem”. He says: “The voter representation is a reflection of the world 40 years ago. Why does Belgium have the same voter power as China?”
At the moment, the US has 16.8% of the vote on IMF governance, which is far more than any other country, followed by 2-5% votes for Japan, Germany, France, UK, China, Italy, Canada, Russia, Saudi Arabia, Belgium, India and Switzerland. The head of the IMF has traditionally been from western Europe.

Mandeng says: “The idea has been that the managing director has to come from estern Europe in order to have the ear of the G7. Still, all these European heads of the IMF, enough is enough.”

In April 2008, the IMF did announce, with much fanfare, a new quota formula to give emerging market countries a greater vote in the IMF’s governance. However, Leech of Warwick University says: “It was just hype. The changes make almost no difference to the distribution of voting power. It reduces the US vote from 16.8% to 16.7%.”

Ariel Buira, Director of the G24 Secretariat in Washington DC, says: “The results of quota reform were very disappointing. The inclination of the EU and US is to maintain the status quo as much as they can. But the system is broken, and the G8 alone is not able to fix it.

The US’s domination of the IMF’s governing structure may have caused what many experts believe to be the fund’s great failure of the last decade – the failure of its surveillance function over the US and Chinese economies.

Buira says: “The IMF is charged by Article IV of its constitution to exercise surveillance over the economies of both China and the US. But there was no effective surveillance. There was instead a major failure of the IMF to perform its duty. The overwhelming power of the US over the IMF prevented the fund from making proper criticisms of US policy.”

Many analysts agree that the IMF has an important role to play in its surveillance and advisory functions. But some question if the IMF’s expertise at the moment is in the right area. El-Erian says: “The expertise of the IMF has to change. It’s a macro shop at the moment, full of macroeconomists. But they don’t know much about finance. There’s now a recognition that the IMF needs expertise in finance as well as economics. The fund has homework to do.”

These issues are likely to make reform of the IMF a slow and acrimonious process. In the meantime, investors will have to keep their fingers crossed that the fund doesn’t run out of money in the next 12 months.