Book at bedtime

Book at bedtime
Published: 26 October 2004

Reading ‘Globalisation and its Discontents’ by Joseph E Stiglitz (winner of the 2001 Nobel Prize in Economics)  a section on understanding the origins of the East Asia crisis of 1997 provides some illuminating insights – although Joseph Stiglitz is at pains to point out that he does not share such conspiritorial views.

In essence, international trade and finance policies of the period leading up to the 1997 Asian crash were engineered as a deliberate attempt to weaken East Asia – the region of the world that had shown the greatest growth over the previous 40 years. Or, if not to fatally weaken the region, but to enhance the incomes on Wall Street and other money centres.

One can, says Stiglitz, understand how this line of thinking developed: The IMF first told the countries in Asia to open up their markets to hot short-term capital. The countries did it and money flooded in, but just as suddenly flooded out. The IMF then said interest rates should be raised and there should be a fiscal contraction, and a deep recession was induced. As asset prices plummeted, the IMF urged affected countries to sell their assets even at bargain basement prices. It said the companies needed solid foreign management (conveniently ignoring that these companies had a most enviable record of growth over the preceeding decades, hard to reconcile with bad management – says Stiglitz) and that this would only happen if the companies were sold to foreigners – not just managed by them.

The sales were then handled by the same foreign financial institutions that had pulled out their capital, precipitating the crisis in the first place. These banks then got large commissions from their work selling the troubled companies or splitting them up, just as they had got large commissions when they had originally guided the money into the countries in the first place.

As the events unfolded, cynicism grew even greater: some of the American and other financial companies didn’t do much restructuring; they just held the assets until the economy recovered, making profits from buying at the fire sale prices and selling at more normal prices. Heaven forbid!