The Asian implications of the financial crisis

October 10, 2008

The Wall Street crisis seems light years away from the side streets of Manila's urban poor slums.

For the labouring masses in the Philippines the capitalist system has been in crisis for some time now, unable to deliver life's basic necessities.

According to official National Statistics Office data poverty levels have increased between 2003 and 2006, and 2008 is expected to be the worst year since the 1998 Asian economic crisis.

Between April 2007 and April 2008 the labour force grew by only 81,000, while the number of unemployed rose by 249,000.
Jobs have been lost at a time when prices and inflation are skyrocketing.

The global financial crisis now threatens to impact on the higher income families as well. It could threaten the employment of Filipino overseas workers whose remittances, amounting to US$14 billion-plus in 2007, have been the backbone of the economy at a time when foreign direct investment has shrunk to almost nothing.

Rumours are also rife that the state pension fund, the Government Service Insurance System, is heavily exposed to the US sharemarket and had invested in the now-collapsed Lehman Brothers.

Despite public concern, GSIS is refusing to release a detailed financial statement.

Decoupling debunked

The wild swings in the Asian financial markets in response to the events in the US have shattered any lingering myths that the Asian economies are "decoupled" from the US economy.

The 70% decline in the Shanghai composite index from its October 2007 peak, the recent failures of Philippine and Indonesian bond auctions, the downward pressure on Asian currencies are just some highlights of the collapse of the "decoupling theory".

When big US banks are collapsing, can Asian banks survive?

On September 24, worried depositors lined up to withdraw their money outside East Asia Bank, Hong Kong's third largest bank with $51 billion in assets. The panic was triggered by text-message rumours that the bank was in distress.

Depositors who lined up said that after the failure of Lehman Brothers they no longer fully trusted any financial institution.

Reports in India that depositors were beginning to pull out their money from the nation's largest private bank, ICICI Bank Ltd, promoted the Reserve Bank of India to reassure the public about adequate cash reserves.

Asia is extremely anxious, and with good reason. More Asian money is now invested in the US and other Western economies than at any point in history. As much as 30% of Asian stocks are foreign-owned and linkages through bond, loan and derivative markets, while smaller, are also significant.

Already in the first eight months of this year capital outflows from Asia reached $38 billion.

The Asian Development Bank — which pushed hard for the elimination of capital controls, thus leaving Asian economies dangerously exposed to the massive swings in capital flows during the 1998 Asian financial crisis — in its usually upbeat Asian Development Outlook updates for 2008, warns that due to the Asia's heavy reliance on the US, Europe and Japan for its major export markets, slower growth in these places will spill over into the Asian economies.

According to the bank's chief economist: "If the global slowdown extends beyond 2009, the repercussions for the region could be severe."

As for the prospect of trade within Asia picking up the slack, according to the report, this too could deteriorate as final demand for the region's exports diminishes.

Inflation forecasts are the highest in a decade, and the rates are expected to rise particularly fast in countries such as Vietnam.

If the sub-prime crisis in the US worsens, Asia is bound to suffer much more serious financial effects, including an abrupt reversal of the capital inflows. If the Western economies get the flu, not only will Asia sneeze, but it could catch a fever.

Reality for labouring masses

The instability in the global financial markets, the rise in inflation and commodity prices such as food and oil, indicate that the main pillars of the neoliberal capitalist economic order are breaking up.

Some left-wing economists argue that the neoliberal economic order has exhausted itself and that the capitalist system is unable to continue to function in this manner. Economic policies based on low wages and stimulated consumption (via easy credit) are no longer viable.

This global crisis today also has a crucial environmental dimension: that of climate change.

Marxism explains that economic crises are a consistent feature of capitalism and are rooted in the major contradictions underlying capitalism: the contradiction between imperialism and underdevelopment; of capital and labour.

A more recent phenomenon linked to post-WWII industrialisation is the contradiction between capitalism and nature. This global crisis also has a crucial environmental dimension: that of climate change.

In its attempt to solve these periodic crisis, capitalism deepens these contradictions and raises them to a higher level, thus paving the way for future deeper crises.

Governments around the world have no clear strategies to resolve the crisis. Even the partial solutions they put forward to solve one aspect or a particular manifestation of the crisis, exacerbates another aspect.

For example, industrialised countries converted agricultural food production to producing biofuels to deal with the potential shortages in oil resources. This has now contributed to a shortage in food production and a huge increase in food prices.

Attempts to intensify oil exploration and conventional fuels such as coal will exacerbate the environmental crisis that threatens the very survival of the planet.

Struggle for power

Despite the severity of the problems facing global capitalism today, there is no inevitability about the "automatic" collapse of the system. It would be a dangerous illusion to think that capitalism will simply collapse and that a socialist alternative will take its place.

The capitalist system is still extremely resilient. Previous forecasts of its inevitable collapse have simply never materialised and have been proven to be wrong.

The system will struggle to survive and keep itself alive — at whatever cost.

The capitalist solutions to resolve the crisis will be at the expense of the labouring masses and the consequences of the "solutions" that it will impose on us will be truly horrendous.

Social movements alone, struggling around particular issues, are inadequate to face the challenge. We need to build political movements, which struggle for power and "system change", such as the advanced movements in Latin America today.

[Reihana Mohideen is the chairperson of Transform Asia, a Philippines-based institute specialising in labour and gender studies. She is a member of Laban ng Masa, a broad left Philippines political coalition. This article is abridged from socialist e-journal Links, which has a series of feature articles on the global financial crisis at]

You need Green Left, and we need you!

Green Left is funded by contributions from readers and supporters. Help us reach our funding target.

Make a One-off Donation or choose from one of our Monthly Donation options.

Become a supporter to get the digital edition for $5 per month or the print edition for $10 per month. One-time payment options are available.

You can also call 1800 634 206 to make a donation or to become a supporter. Thank you.