By Eva Cheng
In March, on the heels of new falls in the Indonesian currency and eight months after the Asian economic crisis first exploded, the International Monetary Fund started pressing for "a new financial architecture" for the world economy as a means to prevent future crises. Some western media tipped the expected changes to be the biggest to the IMF since its formation in 1944.
The IMF asked the G7 club of wealthy countries to endorse its proposal in April, but they failed to come to an agreement. The decision was postponed to May.
What emerged from the May 15-17 G7 meeting fell far short of the goal. The agreed changes have little to do with the root causes of the Asian crisis. They involve no overhaul of the IMF, but formalise two new powers that the IMF has been pressing for — to force all countries to "liberalise their capital account" and to be "transparent in their fiscal and monetary policies".
The former seeks to dismantle any restrictions on capital movements in and out of a country, while the latter can involve the forced disclosure of reserves and other financial details that can increase a country's vulnerability to speculation. Both measures will make it easier for imperialist capital to exploit Asia.
Neither the IMF nor the G7 questions the sustainability of the present world order, which is plagued by "excess" productive capacity — excess not in relation to the needs of people, but only to their ability to pay — and built on the subjugation of the Third World by the imperialist core.
The drive for profits propels capitalists to keep expanding their productive power. That strategy works for individual capitalists, until their competitors catch up. But in doing so, they multiply the excess capacity problem for all capitalists. Capitalists also drive workers harder for less or replace them with machines, which reduces workers' purchasing power and therefore the capitalists' sales.
Exports may ease the problem, but only until those countries try the same thing or close their doors. On a global level, no solution to overcapacity exists, unless the profit system is dumped.
Myths
Instead of addressing this critical issue, the IMF keeps churning out myths. It paved the way for the new powers it sought by blaming Asian governments for corruption and bad management (pegging their currencies to the US dollar for too long, allowing the economy to overheat and not policing their financial capitalists closely enough); Asian industrial capitalists, for having borrowed too much, too riskily (covering longer term liabilities with short-term funding, in foreign currency and unhedged); Asian financial capitalists for lending too carelessly; Asian financial markets for being too restrictive of foreign capital.
The implication is these economies will prosper if their capitalists and governments do these things "correctly".
The IMF mistook symptoms for causes. Neither speculative capital nor incompetent governments or capitalists cause the crises, though their actions may precipitate or magnify them.
Capitalists, whatever their nationality, did not over-borrow, over-lend or speculate only because they misjudged or were careless and/or incompetent. Many of them, including those imperialist banks that lent to Asia, rode on the edges consciously, for greater profits.
The IMF completely ignores the structural dependency of many Asian economies on the imperialist centres, especially on their markets. The collapse in prices of computer chips in 1996, a key factor in undermining the international balance of payments of Thailand, South Korea and Indonesia, was a testimony of this dependency and their vulnerability to competition from other producers, often over a limited product range.
Seven pillars
In justifying its new powers and to pave the way for future ones, the IMF says seven building blocks are required to support the new financial architecture: further globalisation of the world economy; integration of the poorest countries into this process; an open and liberal system of capital flows; transparency in financial management; good governance (a sweeping excuse to interfere in the Third World); best practices (with the west's institutions and market structures being the standard, requiring the Third World to follow); and a multilateral approach to global problems but with the Bretton Woods institutions — the IMF, World Bank and what is now the World Trade Organisation — as the key instruments.
All seven elements seek to consolidate and increase the existing imperialist domination of the Third World. Though capital in its two main forms — equity (direct investments and stocks) and debt (through banks as well as the capital markets) — are both covered, the emphasis is on the former.
Globalisation in circulation has a longer history, in the form of cross-border loans by imperialist banks and their state credit agencies to increase product sales and/or to facilitate the transactions.
The internationalising of productive activities came much later, made increasingly viable by technological advancements, particularly in communications and transport. This can provide a much needed outlet for capital, concentrated mainly in the imperialist centres, to engage in productive activities, where real values are produced, as opposed to speculation.
The key resistance to this extension of imperialist capital has come from Third World capitalists seeking to protect their turf. But the economic crisis has seriously weakened the bargaining positions of these capitalists.
Money into a black hole
Though the IMF has ignored the structural causes of the Asian crisis, it couldn't avoid confronting the immediate consequences. In September, three months into the crisis, the IMF made a special capital call from its 182 members to increase its capital by 45%, or US$90 billion.
Three months later, it had to tailor-make a new category — supplementary reserve facility — in order to justify breaking existing limits for the US$57 billion rescue for South Korea, the IMF's biggest bailout ever.
The IMF is getting used to needing more funds for bigger rescues. In the wake of the Mexico's 1994-95 crisis, the IMF created the "new arrangements to borrow", which allowed it to double its resources by borrowing from 25 designated countries.
The IMF has long gone beyond its original mandate to ease temporary imbalances in international payments. This is not surprising, because the payment imbalances are rooted in deeper causes.
Outside the imperialist camp, international payments are determined mainly by trade. But trade income in the Third World is often insufficient to cover imports because of the dependent nature (even on food) of their economies. Tourism, aid and remittances are the other key inward funds but are far from enough to plug the yearly gap. Thus they have to borrow.
The current international payments of most Third World countries have always been structurally unbalanced. The IMF's "structural loan facilities" are only a disguised recognition of this fact, though officially it put the blame on "unanticipated external shocks".
The original facilities were for one to two years, the stand-bys, but longer credit lines of up to 10 years had to be created to deal with new crises. The extended fund facility was created in 1976 to address "structural balance of payment maladjustments"; structural adjustment facility (SAF) in 1986 for "protracted balance of payment problems" and "medium-term macroeconomic and structural adjustment"; enhanced structural adjustment facility in 1987, enlarged in 1994, built on harsher conditions; compensatory and contingency financing facility in the 1980s to address shortfalls in export earnings or an excess in cereal import costs; and systemic transformation facility in 1993 for the ex-USSR states and eastern Europe; and in early 1997 it created the highly indebted poor countries facility.
Through these facilities, harsher and more far-reaching conditions are imposed, locking many Third World countries into a deadly chain of debt.
To maximise its impact on a growing problem, the IMF has been working increasingly closely with the World Bank. The SAF is one such joint effort.
On paper, the IMF served the collective interests of its 182 member countries. But based on a dollar a vote structure, the richest countries have the biggest say (the G7 countries together hold 45% of the votes; the US has 18% of the total). Share allocations are prescribed on factors such as a country's scale and "influence" of its economy, reinforcing the bias. Major decisions required a 85% majority, giving the US a veto.
The Board of Governors, in which all member countries are represented, is the IMF's highest decision-making body, but only in theory. In practice, the Executive Board runs the show. It has 24 members, of which eight were appointed to represent the largest countries. The remainder are organised in arbitrarily constituted groups dominated by the second-tier countries.
There is no doubt whose interests these 24 executive directors serve and what kind of economic relationships and structures they seek to reinforce. The IMF's mission is to maintain the economic relations that plunder the Third World, which it can do only by inflicting greater poverty on the majority.
More and more of the impoverished masses are unwilling to pay the price. The Indonesian students and workers in revolt against Suharto's crony capitalism and IMF-imposed austerity may be followed by others.