DESTROYING NATIONAL CURRENCIES
Professor of Economics, University of Ottawa, author of "The Globalisation
of Poverty, Impacts of IMF and World Bank Reforms, Third World Network,
Penang and Zed Books, London, 1997. The author can be contacted at
Copyright by Michel Chossudovsky, Ottawa 1997. All rights reserved.
Since the onslaught of the debt crisis in the early 1980s, the IMF has
played a central role in exchange rate policy often requiring indebted
Third World countries to devalue their currency by 50 percent as a
"pre-condition" for the subsequent negotiation of a loan agreement. IMF
sponsored currency devaluations have invariably resulted in abrupt price
hikes and a dramatic compression of real earnings.
What is distinct in the cases of Korea, Indonesia and Thailand is that the
devaluation (which preceded the bail-out agreement and the imposition of
sweeping macro-economic reforms) had not been explicitly demanded by the
Washington based bureaucracy. Rather it was the result of speculative
pressures on currency markets exerted by the large merchant banks and
financial institutions (through the use of a variety of speculative
In the context of the Asian financial crisis, "institutional speculators"
(rather than the IMF) have come to play an indirect role in the process of
macro-economic reform. In other words, international banking and financial
institutions have (in a de facto sense) dictated country-level foreign
exchange policy, --ie. through the deliberate manipulation of currency
markets. In this context, "institutional speculators" are involved in
"setting the stage" for the subsequent IMF bail-out operation. They are
also involved in routine consultations with the Bretton Woods institutions
pertaining to the various components of the macro-economic reform package
included in the bail-out agreements (eg. the deregulation of Korea's
financial sector and the opening up of Seoul's bond market to foreign
In turn, the same Western and Japanese financial and banking institutions
(routinely involved in currency and stock market speculation) are the
creditors of Asia's central banks. They also hold large amounts of short
term debt and have, therefore, a vested interest in averting loan default
by Asian financial institutions. Not surprisingly, these same Western and
Japanese financial institutions have pressured G7 governments to implement
the bail-out operations of which they are the ultimate beneficiaries, --ie.
the 57 billion dollars under the IMF sponsored agreement with the Seoul
government will be used to reimburse Korea's creditors.
How will these multi-billion dollars operations be financed? The
contribution of the Bretton Woods institutions and the Asian Development
Bank (ADB) constitutes but a fraction of the total. The largest
contributions to the bail-outs are from G7 governments, requiring the
issuing of vast amounts of public debt.
In other words, G7 governments have come to the rescue of the merchant and
commercial banks by accepting to finance the bail-out, yet to undertake
this objective, G7 national treasuries are obliged to issue large amounts
of public debt which is invariably underwritten by the large merchant
banks. In other words, the "beneficiaries" of the bail-out are also the
underwriters of the public debt operation required to finance the bail-out.
An absurd situation: G7 governments are "financing their own
While the bail-outs are conducive to the building up of public debts (in
both the Asian and G7 countries) --thereby reinforcing the stranglehold of
the creditors over the conduct of economic policy-- tens of billions of
dollars of public money are transferred into the hands of private financial
institutions leading to an unprecedented accumulation of private wealth. In
turn, the macro-economic reforms imposed in the context of the IMF
sponsored bail-outs are conducive to a dramatic collapse of the real
economy leading to the impoverishment of millions of people.
Department of Economics,
University of Ottawa,
Alternative fax: 1-613-5625999
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