Behind their sudden switch: World capitalists buy time

By Fred Goldstein, Workers World, 15 January 1998

A funny thing happened in south Korea on the way to the free market as 1997 turned into 1998.

A mighty crowd of free-market oracles—on a journey to crush the south Korean government’s sinful, anti-free-market coddling of conglomerates and protection of workers from mass layoffs—took a slight detour. Suddenly they veered down the perilous road of statism.

They found a way for the south Korean government to intervene in the economy after all: It should guarantee that the imperialist banks will be repaid the tens of billions of dollars they have loaned to south Korean banks.

United States Treasury Secretary Robert Rubin, Federal Reserve Board Chair Alan Greenspan, International Monetary Fund President Michel Camdessus—free marketeers all—and the commercial and investment bankers they serve were staring a south Korean default in the face. Some $15 billion in debt repayment was due by the beginning of January. Some $80 billion more is due later this year.

The banks decided they had no choice but to roll over some of these short-term loans, which could not be paid anyway. But at a price. They told the south Korean government it would have to convert all the south Korean bank’s private debt into government debt and guarantee repayment.

Now the south Korean capitalist government can sweat the debt out of the hides of the south Korean masses, through taxes.

So much for the free market.

MEETINGS IN NEW YORK, PARIS, BONN, TOKYO

In the name of letting the markets work, these very agencies and banks have required the south Korean ruling class to open its economy so imperialist banks, mutual-fund managers, stock brokers and multinationals could invade and take over the south Korean economy—the 11th biggest in the world.

The agreement was accomplished at the highest level during a meeting at the headquarters of the J.P. Morgan Co. Top executives of Chase Manhattan, Citicorp, Bank America and Bank of New York attended.

The document requiring the south Korean government to repackage $15 billion in debt was drawn up by J.P. Morgan.

Similar meetings were held in Paris—organized by the Societe General, in Bonn by Deutsche Bank, and in Tokyo by Tokyo-Mitsubishi. British, Italian, Canadian, Dutch and Swiss banks also participated in global conferences.

The debt is owed to over 100 imperialist banks. The Japanese banks are the largest holder, followed by Germany, France and the United States.

These are global marauders. Under cover of the IMF, the World Bank and the World Trade Organization with its Multilateral Agreements on Investment, they have been battering down every government protection against economic aggression by the multinational banks and corporations. Wherever possible, they have destroyed government programs for social spending and protecting the working class.

They are demanding that the south Korean government remove all laws that guarantee workers’ jobs—while at the same time the bankers demand guarantees for their loans.

These banks made handsome profits on the $200 billion they loaned to south Korea. But now that the gravy train is over, they are using the crisis to squeeze the country. The greatest burden, of course, falls on the working class.

According to the south Korean Ministry of Labor, the country is suffering from a wave of bankruptcies and already has the highest rate of unemployment since 1986. Over a million jobs are threatened by the bankers’ austerity program.

BANKERS FEAR A WORLD CRISIS

But the bankers and the imperialist governments took charge of the crisis for a bigger reason than to protect their losses on south Korean loans.

They fear a worldwide crisis. They are trying to build a fire wall in south Korea.

While the U.S. government and market analysts try to exude confidence about the U.S. economy, the summits of Wall Street are profoundly worried about the prospects of a collapse.

Nowhere was this more evident than in Alan Greenspan’s recent speech to the annual meeting of the American Economic Association in Chicago. He said that some observers have begun to question whether deflation is now a possibility.

According to a Jan. 4 Reuters story, Greenspan devoted a full 15 minutes to discussing the negative consequences of deflation. Peter Kretzmer of NationsBank said, It indicates that Greenspan will take a lot more care before he decides to tighten monetary policy, and there is even a possibility of an easing.

Why all the worry? Because deflation is a code word for capitalist collapse.

Reuters commented on Greenspan’s remarks: Deflation has not occurred in the United States on a broad scale since the Great Depression of the 1930s. Greenspan declined to say whether there was an imminent risk of a deflationary cycle, but said it could be at least as bad for the economy as inflation.

In November, the Hong Kong stock market collapse was followed by a huge drop in the U.S. stock market. At that time Greenspan testified that he saw no great danger to the U.S. economy from the events in Asia.

Indeed, up until this latest remark, Greenspan has remained steadfast as an inflation fighter. This was shorthand for threatening to slow down the economy any time it appeared that the working class was even on the verge of making wage gains.

After the Teamsters’ August strike victory at United Parcel Service, Greenspan sounded the alarm about the possible spread of struggle among the workers—and threatened to raise interest rates.

THINGS TURN INTO THEIR OPPOSITE

The Korean crisis has changed all that.

Whether or not a world crisis is in the immediate offing is impossible to tell, even for the Wall Street financiers. Each giant monopoly conducts its business in secret, shutting out the other monopolies and the capitalist government. This is part of the anarchy of capitalism.

But it is clear right now that the highest summits of finance capital are deeply concerned about a widening of the crisis. This is why the Clinton administration and Treasury Secretary Robert Rubin switched positions—from favoring forcing bankruptcies in south Korea and not bailing it out, to backing organizing new loans and reducing bankruptcies.

And this is why Greenspan has gone from stressing inflation to warning of a price collapse, which of course means a profit collapse and layoffs.

CRISIS WON’T SETTLE DOWN

No sooner had the agreement to roll over the short-term loans and repackage them as government debt been signed than the whole thing began to shake.

It was the giant imperialist banks that agreed to the package. Some smaller banks are balking. The rollover is being watched intensely.

If any significant section of the bankers does not go along, then bankruptcies can start and all their loans are at risk. But can anyone get over 100 greedy banks spread all over the capitalist world to take united action? It’s easier said than done.

In addition, the size of the problem keeps changing. Although some commercial bank ers have estimated that the repackaging would be at least $15 billion, analysts and investment bankers note that the debts keep coming due. Thus, a repackaging may ultimately have to be closer to $30 billion, due by late January. (New York Times, Jan. 2)

As of Jan. 5, the New York Times was reporting that commercial banks deferred payment on only $3 billion to $4 billion worth of loans, far less than the government had hoped for.

In other words, the banks want to save the situation—but they want to get their money first. So the $15 billion rollover has yet to really happen.

Indeed, the south Korean government is going to Wall Street on its own to try desperately to raise $35 billion by floating new government bonds.

On top of the south Korean situation comes news that the Thailand bailout has fallen far short. (Asia Week, Nov. 28) Bangkok has gotten a pledge of $17 billion from the IMF, but analysts say that the real immediate need is closer to $40 billion. On Jan. 5, the Thai baht plunged to a record low against the dollar.

The Philippines has just been forced to agree to an extension of IMF supervision of its economy. A $2 billion fund is being set aside in anticipation of a financial crisis.

In Indonesia, the rupiah has dropped to a new low against the dollar. Agence France Presse reported Jan. 4 that an executive of the Indonesian Chamber of Commerce and Industry said that up to 2.4 million people ... had lost their jobs in the capital and surrounding area.

CORRUPTION OR OVERPRODUCTION?

The conventional wisdom spouted by all the Wall Street analysts is that the crisis is just a problem of bank mismanagement, unwise investment, speculation and so on. In other words, it is a temporary financial problem unrelated to the state of the world capitalist economy.

Of course, corruption and mismanagement abound, not only in Asia but in Washington and on Wall Street. But the working class must not allow this fact to conceal the deeper problem of capitalist overproduction.

In an article trying to foretell the course of the U.S. economy in the coming year, Luis Uchitelle wrote in the Jan. 5 New York Times:

The [Asian] crisis plays a role here. With consumers in Korea, Thailand, Malaysia, Indonesia and Japan buying less, those countries are exporting more of their merchandise to the United States, at ever lower costs.
. . .

The rising supply of Asian goods comes at a time when United States companies have stepped up production capacity at home. The machinery and floor space used in domestic production have grown over the last two years at an annual rate of more than 5 percent, new government figures show. That is nearly double the growth rate in the early 1990s.

The issue of the year, then is oversupply. In a number of industries—autos, toys, paper, plastics, textiles, electronics—production outstrips demand.

So whose investment is irresponsible?

The financial pundits here say that Asian capitalists made irresponsible investments in toys, autos, electronics and so on. But their real problem is that they were vanquished by imperialist finance capital—which made the very same investments in the United States, Japan and Europe.

The irresponsibility lies in the capitalist system itself. The struggle for profits leads to capitalist overproduction.

The dynamic of capitalism, explained long ago by Karl Marx, leads inevitably to production outstripping consumption. This brings about a crisis.

The longer it lasts, the more the working class is faced with only two choices: either be ground down under the burden, or seize the time to take over the means of production, put an end to production for profit, and harmonize economic life in accordance with human need.