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THE ASIAN CURRENCY CRISIS,
THE LOOTING OF CENTRAL BANK RESERVES


by

Michel Chossudovsky

Professor of Economics at the University of Ottawa, author of "The Globalization of Poverty, Impacts of IMF and World Bank Reforms", Third World Network, Penang and Zed Books, London, 1997.

C Copyright by Michel Chossudovsky, Ottawa, 1997. All rights reserved. This text can be posted on the internet. For publication in printed form contact the author at chosso@travel-net.com, fax 1-613-7892050

On August 21st barely one week after the dramatic mid-August plunge of the New York Stock Exchange, a consortium of international banks and governments gave their approval (under the stewardship of the IMF) to a 17.2 billion dollars rescue operation to prop up the Thai baht. This was the largest bail-out since the Mexican crisis of 1994-95. On the 31st of October, barely four days after "Black Monday" October 27th, a similar 23 billion dollars emergency loan was announced for Indonesia.

According to the IMF, the Southeast Asian rescue packages are intended to avert "the dangers of a Mexican type currency crisis". The money is granted, however, on condition that Bangkok and Djakarta governments lay off tens of thousands of public sector workers and implement tight austerity measures.

While the bail-out temporarily replenishes central bank reserves on borrowed money, the IMF's "economic medicine" contributes to crippling national economies while simultaneously weakening the ability of the monetary authorities to defend their currencies against further speculative attacks. The real economy is in a free fall; the IMF sponsored "rescue package" has contributed to further heightening the risks of a financial meltdown.

Ironically, rather than "restoring confidence", the Thai bail-out has contributed to alluring international speculators enticed by the large amounts of fresh cash now available in the vaults of the Thai Central Bank. Since August 21, a large chunk of the 17.2 billion dollars rescue money has already been ransacked and reappropriated by international banks and financial institutions in a renewed surge of currency speculation in the course of October and November. In turn, the Thai Central Bank had accumulated outstanding contracts of some 23 billion dollars on the forward market which have to met within the next few months...

The hidden agenda behind the rescue packages is ultimately to tear down central banks in Southeast Asia thereby thwarting the possibility of financing economic development from within. In several countries in Africa, Eastern Europe and the Balkans, central banks have already been replaced by colonial style "currency boards". Under this set-up, monetary policy is administered by an expatriate governor appointed by the IMF.

Through economic and financial manipulation, Southeast Asia's "economic tigers" have been transformed into "lame ducks". The objective consists in removing the remaining bastions of trade protection. The latter rather than "free trade" had enabled several ASEAN countries to develop a strong export base as well as accumulate substantial foreign currency reserves.

The currency crisis as well as the policies imposed on central banks by the IMF are conducive to the demise of the so-called "Asian Miracle" --which until recently was heralded by the Bretton Woods institutions as a model of economic success. National capitalism in Malaysia and Thailand is to be torn down; external creditors, IFIs as well merchant banks are taking over the reigns of monetary policy.

Speculators and Creditors

The large merchant banks are also involved in propping up central bank reserves by underwriting billions of dollar of commercial loans and bond issues to central banks. Ironically these same creditor institutions are also routinely involved in currency speculation. In July 1997, for instance, ING Baring (well known for its activities in derivative trade and the Forex market) formally offered to underwrite a one billion dollars Euronote issue for the Central Bank of the Philippines (CBP) with a view to propping up the Peso. Two months later in the September frenzy on Asia's currency markets, the CBP sold large amounts of its dollar reserves on the forward market: a large chunk of this borrowed money was transferred back into private hands.

The speculators, the IFIs and the commercial creditors of Asia's central banks essentially belong to same group of financial and banking institutions representing broadly the same interests. Not surprisingly, the financial institutions involved in periodically looting central bank reserves also exert pressures on G7 governments and the IMF to "help developing countries' monetary authorities" in replenishing their vaults with large amounts of fresh money...



Michel Chossudovsky

Department of Economics,
University of Ottawa,
Ottawa, K1N6N5


Fax: 1-613-7892050
E-Mail: chosso@travel-net.com


Alternative fax: 1-613-5625999


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