Debt and the Global Economic Crisis of 1997/98/99

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  • by Anup Shah
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The structural adjustment measures, global, unregulated free markets1, lack of protection for emerging economies2, and debt 3 all contributed4 to the global economic and financial crisis5 in the late 1990s. It saw stock markets stumble, economies collapse, unemployment and poverty increasing (and western nations and institutions made sure that the IMF rescue packages would help get their money back, while structurally adjusting the affected nations).

As long as capital flows freely, nations will be vulnerable to self-fulfilling speculative attacks, and policymakers will be forced to play the confidence game. And so we come to the question of whether capital should really be allowed to flow so freely.

Paul Krugman, MIT Professor of Economics, How Washington Worsened Asia’s Crash; The Confidence Game6

This had an impact on everyone from Asia to Russia7, Latin America and Africa.8 (The link on Africa is the United Nation's Secretary General, Koffi Annan’s, report on the region about the causes of conflict, peace resolution, sustainable development etc. I have included it here to show an example of how the lending institutions have not really helped in realizing a free democratic Africa.)

There have many other reasons for the cause of the crisis, as this research paper9 suggests. However, solutions10 are not easy either.

Towards the end of the 1990s, even the mainstream media's reporting on the global financial crisis can warrant criticism. Their phrases used (an Asian Financial Crisis, crony capitalism which was the fault of people in the affected countries and so on), their angles portrayed, the influences of western corporations etc. all resulted in coverage that tended to implicitly, sometimes explicitly, blame others. It came over as though excuses and other explanations had to be provided so as not to let us imagine that some of the root causes would ever come from the home-grown prescriptions. The following quote provides another way to look at it:

Examined for how things come to be rather than how they are, it appears, if anything, [the Asian Financial Crisis was actually] a Western Financial Crisis with Asian victims. A reflection which subsequently occurred to many in the countries concerned, as IMF rescue packages seemed to cut government spending and send local businesses to the wall while ensuring that unwise lending by Western banks was repaid in full. This made sense because crony capitalists were being punished for their inherent shortcomings. The remedy in future, according to the IMF, was to remove any remaining obstacles to the free play of market forces, opening currency and capital markets to unregulated speculative flows.

What are Journalists For?11

While various Asia/Pacific countries are in the process of recovering, they must learn the lessons of the financial crisis by relying on domestic roots for growth, diversifying exports and deepening social safety nets, says a United Nations Economic and Social Survey of Asia-Pacific report12. It is interesting to note that this is opposite of the processes prescribed by nations such as the United States and organizations such as the WTO, IMF and World Bank, that prefer more liberlization and opening up of countries to allow foreign investment to be easier (and allowing pull outs to be easier -- which is what happened in this crisis in the first place.) For a summary of the UN report, you can also read this news article13.

The IMF transformed a financial crisis into an economic and social crisis not only by demanding tight macroeconomic policy but also by ensuring that the cost of financial sector restructuring was transferred from predominantly private institutions to the public purse. Private debt became public debt.

The Transfer of Wealth;14, Debt and the making of a Global South, Chapter 3, a publication of Focus on the Global South, October 2000.

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