It has taken two years for Australia to feel the impact of the Asian financial crisis. This may seems a strange comment given that yesterday’s financial pages were filled with unabashed optimism about the Australian economy: an unsurpassed nine years of growth, the lowest unemployment and interest rates for years, and negligible inflation. What I am referring to of course is not the state of the economy, but the state of East Timor. The events may seems unrelated, but put in a proper historical context there is a clear line linking the circumstances which gave rise to the Asian financial crises of 1997, and the human and political crisis of East Timor in 1999.
To make this connection, we need to go back some years – back say to the late 1980s, for this was the time that Indonesia and other countries in the region – Thailand, Malaysia and the Philippines – started to liberalise their economies to the global market. Persuaded by the World Bank and the International Monetary Fund that the key to ensuring year-on-year growth was to open their doors to international finance, these countries opened their capital accounts, pegged their exchange rates to the US dollars to gain investor confidence and effectively provided a government guarantee against currency risk. In this setting – with growth fuelled by cheap labour and natural resources – these economies underwent an export-powered boom.
Thailand, Malaysia and Indonesia posted growth rates of 6 per cent plus year after year throughout the 1990s. These economies became the darlings of the World Bank and the international investors, feted at the 1995 50 years anniversary of the Bretton Woods institutions and held up to other struggling nations as the model to be emulated.
In Thailand and to some extent Malaysia, a growing middle class and calls for political democratisation slowly opened up spaces through which opposition groups and civil society organisation could emerge (although in Malaysia – as we have seen – the spaces are very small indeed).
In Indonesia, however, there was no political reform whatsoever, and in fact what we saw developing was a patrimonial state, with General Suharto as the patriarch, and his family, Golkar, Abri and an inner circle of elite friends in absolute control of both the economic and political realm.
That Suharto’s regime was odious, corrupt and repressive was no secret, but the international community, and that includes of course Australia, was too craven, too dazzled, too greedy and too complicit to protest. Too craven because they feared the power of Indonesia (quite correctly as it turns out), too dazzled and greedy because everyone wanted a share of the Asian miracle (we don’t need to go any further than Australia’s foreign policy on East Timor for evidence of that) and too complicit because of course it was the transnational corporations and financial institutions who were making the really big killing in Indonesia. The keepers of the so-called Washington consensus – the dogma of the free market supported by the trinity of deregulation, privatisation and liberalisation – needed ‘success’ stories like Indonesia to support their zealot like commitment to the free market and neo-liberal economics. The convergence of elite interests was perfect and gave rise to a level of complicity between the Western powers, the international financial institutions, international investors and the Suharto regime which excluded the interests of ordinary Indonesians.
Unfortunately however for Suharto, Thailand’s bubble economy – pumped up by vast amounts of speculative investment – eventually burst. And the bursting bubble reverberated throughout the region. We all know the story from here: the Thai government wasted 32 billion dollars in foreign reserves defending the baht from the ceaseless attacks of the hedge funds, and nervous investors pulled their money out as quickly as they could. The harsh lesson of this is that the doors of finance capital swing in both directions and that the money can disappear just as quickly as it arrives. (Unfortunately, no one seems to have learned the lesson. The Thai baht is presently enduring another attack from the hedge funds and there are no capital controls in place.)
We can move quickly through the next stages of the financial crisis because I am sure many of you will be familiar with the details. Within months, Thailand, Indonesia, South Korea, the Philippines and Malaysia all found themselves verging on the edge of economic chaos, with foreign reserves depleted by unsuccessful attempts to defend their currencies against speculative attacks, capital bleeding from the region, and debt growing as currencies devalued. Thailand, South Korea and Indonesia all turned to the IMF for emergency loans which – as they discovered — had more strings than a chamber orchestra.
Almost immediately the IMF recovery programmes were attacked by conservatives and progressives alike for completely misdiagnosing both the problem and the cure. The critics said that the IMF package of budget cuts and high interest rates would only exacerbate the problem by plunging the economies further into recession. And this is what happened: the three countries receiving IMF loans notched up negative growth in 1997 and 1998 (in stark contrast to decades of record-breaking growth), experienced burgeoning unemployment and underemployment, their financial sectors became clogged with unrecoverable non-performing loans (NPLs are currently running at about 50 per cent in Thailand). From Korea we received reports of desperate suicides and the bankruptcy of thousands of small businesses, and in rural Thailand, families used years of savings simply to survive. In Indonesia school drop-outs rose, malnutrition started to reappear and violent competition for resources split communities. The human cost of the crisis is real, and continues. There were undoubtedly gains in the past decades of economic growth, and these have not all been lost, but there is a pervasive air of confusion, despair and futility as people see the certainties of the past swept aside.
Two years after the crisis, the majority of analysts unequivocally point the finger of blame in the direction of the finance markets, noting that too rapid liberalisation of the capital account and the consequent surge in speculative investment was the major cause of the asset bubble, market volatility and eventual financial collapse. Everyone, that is, except the IMF which resolutely sticks to its original analysis that crony capitalism, corruption and weak institutions were the major factors triggering the crisis. If this were so, why didn’t did China and India escape the crisis? (And of course only spoilsports would suggest that the fact that these countries have capital controls might be significant .)
This is important because it shows us where the battle lines are being drawn: between those who believe that a firm commitment to financial liberalisation — albeit ‘orderly and transparent’ — is the correct policy response to financial crises, and those who argue that what we need is a whole new regulatory framework which can protect local and emerging economies from the vicissitudes of the international finance. I will return to this later, but let me now just continue on the path from the Asian financial crisis to the political crisis in Indonesia and East Timor.
Everyone would agree that one of the few positive outcomes of the Indonesian crisis was that it precipitated Suharto’s downfall. It is unlikely that this would have happened either a that time or so quickly without a little nudge from the IMF who doggedly stuck to their policy directive to lift food and fuel subsidies thus creating the climate for a massive public outpouring of anger. Hungry people are angry people, and once Suharto was unable to deliver his side of the economic contract which kept the Indonesian population more of less under control, all hell broke loose.
Here it is interesting to compare the political responses to the crises throughout the region: in all cases, except Malaysia, the crisis led to a change in government – an easy transition to greater democracy (albeit an elite Washington-oriented democracy) in South Korea and Thailand, and a much more fraught and violent transition in Indonesia. The highly repressive and centralised regime proved inflexible and incapable of dealing with the financial chaos, and the IMF and its backers withdrew support from Suharto once they realised that he was no longer willing to play their game.
A little over a year has passed since Suharto stepped down: although the rupiah has stabilised somewhat and there were – until a week ago – some indications that foreign investors were regaining faith in Indonesia, the day to day circumstances for most Indonesians goes from bad to worse. Millions of jobs — either lost or reduced to short hours in the manufacturing and construction sector — have not been replaced, the cost of living has escalated and household incomes slashed. There has been an election, of course, and only time will tell whether the new leadership – the latest rumours are of a Megawati-Wiranto ticket — will be ale to fulfill the hopes and aspirations of the millions of Indonesians who voted for a change. Let us hope that like the East Timorese, they too don’t have their hopes dashed. Which leads us back to what’s happening in East Timor today.
As I mentioned earlier, the complicity between elites in Asia and the West ensured that financial and economic interests prevailed over everything – even the most basic human rights. The West, and Australia, must bear much of the responsibility for supporting the Suharto regime long past its use-by date and ensuring that the present political configuration in Indonesia is dominated by the military and a nationalistic would-be president. The West was too eager to strike a deal on East Timor – maybe hoping to rid themselves of the stone in THEIR shoe once and for all. Clearly, it has all gone wrong and how and why this happened will be the topic of much debate in the coming months.
For now I would like to focus on the economic and development model which was promoted by the World Bank and the International Monetary Fund and adopted by Indonesia, and why this model is antithetical to people and the planet.
The basic tenets of neo-liberalism, which has been elevated to the status of the Holy Grail, are privatisation, liberalisation and deregulation, all in the name of the free market. And the flourishing of the free market – we are told – will benefit all. The statistics, however, tell a different story. What we call globalistion – more honestly called global capitalism – has created a world which is unfair, unstable and unsustainable. Global unemployment is one billion; the wealth of the richest man in the US (Bill Gates, of course, whose computer software causes untold daily hardship to hacks like me) is equal to the wealth of the bottom 40 per cent of Americans. The world’s three richest individuals have more wealth than the combined GDP of the 48 poorest countries. Structural adjustment has slashed health and education services, workers are exploited in export processing zones, the environment is sacrificed to growth, and anyone who is not able to compete in the global economy is doomed to permanent marginalisation because there is no alternative.
This is not destiny – it is deliberate. Globalisation is not a force of nature, it is a force of man (and I use that word purposely). Ideologically it is backed by influential think tanks, economists and political institutions, promoted at every turn by corporations, protected by the world’s most powerful governments and promulgated by the International Monetary Fund, the World Bank and the World Trade Organisation. They — the Fund, the Bank and the WTO — are the Trojan horses of trade and financial liberalisation, and it is to these organisations that we need to turn our attention.
We have to question both the policies and legitimacy of these institutions: they are undemocratic in their decision making, they are dominated by the interests of the G7, and they have an ideological adherence to neo-liberal economics which does not shrivel in the light of reason or fact. Their policies and rules are skewed in favour of the rich and powerful, in both the North and the South, and they are every day gaining even more control over all aspects of the global economy: the Bank with its Comprehensive Development Framework; the IMF as overseer of the ‘new’ international financial architecture (in which there is nothing new except Michel Camdessus’ epiphany on transparency); and the WTO with ever-expanding rule-making powers on almost all aspects of trade – from financial services to agricultural products to genetic material.
Following the Asian financial crisis and Russia’s spectacular collapse and default, there was an urgent call for a re-assessment of the direction and management of the international economy. Some even said that globalisation had gone too far. However, in the light of continuing growth in the US, a degree of stabilisation in Asia, and an inkling of recovery in Japan, the masters of the universe have recovered their posture of authority and deemed that the real problem is lack of transparency and information! The markets, we are told, will make perfect decisions provided they have perfect information, both absurd assumptions in the extreme. (Especially when one considers the spectacularly bad investment decisions they made in Thailand, for example)
What is needed is regulation of the international economy so that small, emerging and developing countries can manage their integration into the global economy at a pace which enables them to maximise the development benefits for their own people, to create jobs, build democratic institutions and competitive capacities, and to protect people and the environment from the voracity of speculative finance – be it local or foreign.
Yet everything is going in the opposite direction and we – development organisations and so-called ‘civil society’ — are being asked to pick up the pieces.
This is happening is subtle ways. Democracy, reform and open markets are being conflated into one seamless concept, as if one cannot exist without the other. We can see this even more clearly when we consider how these institutions have taken our language from us. It has been co-opted, sanitised and incorporated into the neo-liberal economic model, and stripped of meaning.
Take for example good governance. This is apparently now a pre-requisite for economic growth despite the fact that countries who engaged in bad governance – for example Indonesia – recorded high growth year after year. In fact, good governance is colonisation by another name – imposing Western institutional norms as a proxy for democracy without acknowledging either the legitimacy of indigenous institutions or social relations or the very real conflicts of interests between the powerful and powerless within societies. Good governance bears no relation to the conditions or rights of the people to be governed but acts more like a night light to assure investors that, under the gentle glow of the ‘rule of law’ and ‘institutional transparency’ (business law and banks most importantly) their money is safe.
Social capital is another concept that has been subsumed into the apparent (but not actually) mathematical neutrality of economics. French sociologist, Pierre Bourdieu, coined this expression to describe the values, institutions and mores which perpetuate class relations and privilege. According to the World Bank, however, social capital is the set of social relationships and associations that exist within a society to ensure social cohesion, and the conditions for economic growth. Thus stripped of its radical politics social capital becomes another tool in the neo-liberal kit designed to ensure social stability and all that implies for the perpetuation of marginalisation and disadvantage.
Social safety nets similarly are a post hoc solution designed to mitigate the worst effects of economic turmoil, joblessness and a breakdown in the social – or rather economic – contract between the state and society. By buying into the bank’s social investment fund’s ideology we are tacitly supporting an economic model that creates the very circumstances it claims to address.
Social principles, labour and environmental standards are terms freely used by the IMF, the Bank and the WTO. What we call human rights – absolute, universal and possessed by all people by virtue of their humanity – have been downgraded and stripped of their legal force, and re-packaged as non- binding standards and principles to be determined by unaccountable and undemocratic institutions. I won’t even mention civil society, except to say that civil society is a ‘good thing’ according to the neo-liberals, so long as we are ‘civilised.’
These must be some higher order of value that that dictated by the market. There must be a way of bringing ethics and politics into the foreground rather than allowing the neo-liberal economists to hide their own values and politics in the technical web of macroeconomics. We have to reclaim the language that gives meaning to our work.
Equity, self determination, justice, human rights, people centred development, environmental sustainability, pluralism, local control, democracy, community participation: these are the values at the heart of our work and all of them contain a profound analysis of power and how it works. We can either reinforce the existing power relations by playing field nurse to the IMF and the World Bank, administering anaesthetics and tending to the wounds of the victims of a battle which subordinates people to profits. Or, we can cross the battle lines and show solidarity – not merely compassion — to the people we claim to care for. We must work to redistribute power so that these values become the lived realities for the millions of people excluded, marginalised and exploited by the maw of globalisation.
Rather than see the gains of our work swept away by the next financial crisis, we need to challenge the very institutions that are ensuring its inevitable arrival.
There are signs of hope. In the past year or so we have seen that people working together can create a difference, can slow the march of globalisation. The successful campaign to stall the progress of the Multilateral Agreement on Investment, the denial of fast track trade negotiating authority to the US president, the mobilisation of 10,000 individual members by ATTAC, the French campaign to promote the Tobin tax and democratic control of financial institutions, and the mobilisation of hundreds of thousands, if not millions, in support of the Jubilee 2000 debt cancellation should give us cause for hope.
Strategic alliances are a useful tactic to help us in the short term, but only solidarity will enable us achieve our long term goals of economic and political democracy.
* Nicola Bullard works with Focus on the Global South, Bangkok. This paper was presented at the ACFOA Annual Council Meeting, Canberra, Australia, 11-12 September 1999
