THE ASIAN CURRENCY CRISIS,
THE LOOTING OF CENTRAL BANK RESERVES
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 firstname.lastname@example.org, 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
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
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...
Department of Economics,
University of Ottawa,
Alternative fax: 1-613-5625999
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