Not only the facts mentioned in “Tokyo fiddles while Asia smolders” (Editorial, July 10), but the conclusions drawn from them were wrong.
The gist of the editorial was that the currency, financial and economic crises now engulfing so many of the East Asian countries began as a Japanese problem when the Japanese bubble economy first burst back in the early 1990s. Thus the Japanese government’s “repeated failure to confront its problems” after so many years has been responsible for the crisis that has spread to Thailand, Malaysia, Indonesia, South Korea and the other countries facing a similar fate. This is simply untrue.
Whereas the value of Japan’s securities, real estate and banking sectors did begin to undergo a dramatic reassessment by the market as far back as eight years ago, the current East Asian crisis began last July, when Thailand decided to stop spending foreign reserves defending the value of its currency, the baht, against the U.S. dollar, leading to the baht’s devaluation.
One month later, in August 1997, the Japanese government proposed the establishment of a $100 billion “Asian Monetary Fund,” the purpose of which would have been to stabilize exchange rates by fending off speculative attacks of the kind now rampant in currency markets the world over. Both the U.S. government and the International Monetary Fund came out against Japan’s proposal. For them it represented a loss of control over the situation in East Asia, and therefore was out of the question.
Given the reality of power in the world today, Washington and the IMF prevailed–despite the fact that none of the East Asian currencies was then in free fall, and every single one of the relevant East Asian countries supported Japan.
Washington and the IMF had other ideas, you see. Above all, they demanded that the state sectors of each of the afflicted countries guarantee the foreign debts of their respective private sectors (including the money that East Asian banks and corporations owed to U.S. creditors), while opening up their economies to foreign investment (“restructuring,” in the IMF’s parlance), stabilizing the exchange rates through a combination of fiscal and monetary tightening (“austerity,” the IMF likes to call it), and eschewing capital controls of any kind. Within one or two months, enough foreign capital had fled the East Asian countries that their hard currency reserves (chiefly U.S. dollars) no longer could cover their foreign exchange needs.
The downward spiral of devaluations, skyrocketing interest rates, debt defaults, credit squeezes, bankruptcies, falling incomes, rising unemployment, and economic and social disintegration followed. Hence the East Asian crisis we see today. Compliments of Washington and the IMF.
