The 1997 Financial Crisis and Asian Progressives

The 1997 Financial Crisis and Asian Progressives
Joel Rocamora
ASEM Watch 45, 20 December 1999

It's a classic financial mania. You live in a little world of greed and everybody around you is interested in spinning the story to make the greed sound like a good investment. - International Herald Tribune
13 January, 1998

Tear gas, rubber bullets and police sweeps, the object of incessant media coverage, are the outward signs of impending change - that the guardians of the social order have grown afraid. - Bacon, 1999

What does Eisuke Sakakibara and the 'Battle of Seattle' have in common? Sakakibara, Deputy Finance Minister of Japan at the height of the financial crisis in 1997 and 1998, was recently proposed by the Japanese and other East Asian and Southeast Asian governments to replace Michel Camdessus as IMF Managing Director. In Seattle, 50,000 anti-WTO activists successfully challenged the start of a new round of negotiations for further trade liberalization. Neither of the two would have happened without the 1997 financial crisis.

Should we, as Asian progressives, care? We are surely celebrating Seattle. It is one of the precious few victories of the international progressive movement. Should we support Sakakibara to run the IMF? Our instincts, our gut feel says call for the outright abolition of the IMF instead. Since most of us do not know Sakakibara from Chow Yun-fat, who is going to explain his importance? To rise to the challenge of the opportunities opened up by the 1997 financial crisis, we have to struggle to understand both Seattle and Sakakibara. We have to figure out how to bridge the gap in political action between the two.

The abject failure of the attempt to start a new round of WTO negotiations at Seattle and the nomination of Sakakibara to head the IMF provide stark examples of the ideological disarray of international capitalism. At the beginning of the 21st century, there will be major efforts, massive debates to redefine the main thrusts of neo-liberalism, to reclaim capitalism's ideological hegemony. Asian governments and their ideological avatars will be major players in what will be a competitive process between the main centers of international capitalism.

Asian progressives cannot concede this arena to their governments and the groups who control them. This historic conjuncture provides an opportunity for Asian progressives to intervene at the center. We have been occupying the ideological margins for too long, justifying our limited intellectual and political impact as solidarity with the politically deprived. We have to reclaim our governments for our people. Doing this is most importantly an act of political and ideological imagination.

Post Cold War Crisis

In December 1999, a scant two and a half years after the start of the financial crisis, the most badly hit economies with the exception of Indonesia are again growing at close to pre-crisis pace. Give it another year or so and the dominant "crony capitalism" mantra for exorcising the financial crisis will again give way to 'Asian miracle economies' redux. The progressive movement, meanwhile, is still busy calculating statistics and writing funding proposals for dealing with the social impact of the crisis. With very few exceptions, we are unaware of movement in the tectonic plates of international capitalism.

At the turn of the century, international capitalism is in the throes of massive change. The 1997-98 financial crisis exposed a fundamental weakness. Despite renewed efforts to hype the unexpectedly quick recovery of affected Asian economies, this crisis was the first major crisis of international capitalism in the post Cold War period. It is a real crisis, one that has destroyed billions of dollars of created economic value and devastated over a hundred million lives.

Far from being 'over', the crisis can still led to global recession depending on whether American economic managers succeed in slowly letting the air out of the US' stock market bubble, and if the major economic powers can figure out a way to control volatile exchange rate movements, especially between the three major currencies, the dollar, euro and yen. More importantly, hesitant efforts to work out a new "international financial architecture" betrays an inability to understand the continuing dangers from highly volatile capital flows and the deep structural roots of the crisis.

"This crisis," Walden Bello points out, "has its roots in over capacity or under consumption, which today marks global industries from automobile to energy to capital goods. Diminishing, if not vanishing returns in industry have led to capital being shifted from the real economy to squeezing "value" out of already created value n the financial sector. The result is essentially a game of "global arbitrage", where capital moves from one capital market to another, seeking to turn profits from the exploitation of the imperfections of globalized markets by taking advantage of interest-rate differentials, targeting gaps between nominal currency values, and short-selling in stocks, that is borrowing shares to artificially inflate share values then selling." (Bello,1999:4)

Dubbed "casino capitalism", these international financial flows have been the driving force of international capitalism in the last decade of the 20th century. More than growth in trade or FDI (foreign direct investments), it has determined the main thrusts of globalization. During this period, " the volume of foreign exchange spot transactions had grown to more than 67 times the total value of the international trade (including 'invisibles' or services)". By 1997, more than US$1.25 trillion sloshed around in foreign exchange markets every 24 hours. (Jomo, K.S.,1998: 10) "Not surprisingly, volatility, being central to global finance, has become as well the driving force of the global capitalist system as a whole." (Bello,1999:4)

With this much money floating around at this frenetic pace, decisions by managers of billions of dollars of these funds tend to be determined by herd mentality. Decisions by these, often very young, fund managers will determine whether they will earn six or seven digit annual incomes. For the people in the countries they place these funds in, and pull them out of, the same decisions will determine, not income, but life and death for tens of millions of people. In Indonesia, the percentage of people living below the poverty line plunged to more than 50% from 12% in the space of a few months after the crisis hit at the end of 1997.

The factors pushing this phase in the development of international capitalism are structural. Financial centers in Europe, the US, Japan, and their networks in the rest of the world all benefit from this frenetic activity. Because of its role as the world's largest economy, and because most international financial flows are denominated in US dollars, the US plays a central role in pushing policies supportive of these developments and not incidentally, in enjoying its benefits. With less than 5% of the world's population, the US consumes a full quarter of the world's products and services. The resulting trade deficits are made possible only by sucking in prodigious amounts of the world's capital into the US' stocks and bonds markets.

In mid-December 1999, a widening US trade gap again raised fears of a precipitate slowdown of the economy. In the first nine months of 1999, the US current account deficit was running at an annual rate of $319 billion, 45% higher than in 1998. "A widening trade gap is a potential problem for the economy. As money flows out of the United States to pay for imports, it must be replaced by investment from abroad. As long as the American financial markets perform well, there is likely to be foreign demand for US stocks and bonds. If those investment flows were to evaporate, however, American financial markets could tumble..." (Martin,1999:13)

Ideologues of American capitalism are working hard to hype the unprecedented eight years of steady growth of the US economy as the final solution to "the economic problem". (Glassman,1999: 6) In fact, managers of American macro economic policy including Federal Reserve Chairman Alan Greenspan are extremely nervous about the economy's dependence on the continuing growth of the already bloated US stock market. The financial crisis and low growth in Japan and the European Union economies meant that there was ample capital for the American economy's prodigious appetites in the last few years. With the Japanese, European and other Asian economies steadily recovering, their own appetites for the capital the US is using will increase. The US economy will decelerate. The only question is whether it will be a "soft" or a "hard" landing.

Ideological Crisis

Fast-paced, high gloss "casino capitalism" is powered not just by money, but in much the same way as the bright lights of Las Vegas, by the glitter of the catchword of the nineties, 'globalization'. Endowed with all kinds of power and limitless possibilities by proponents and enemies alike, "globalization" is supposed to be turning the world into one seamless market, sweeping aside all obstacles with the power of an irresistible, inevitable historical force. Only those who are willing to be dumped into the junk heap of history, who want to be trampled by rampaging 'globalization', will attempt to get in its way.

In reality, globalization does not just "happen", it is pushed, often with severe economic and political sanctions. Second, it is the US and the international financial institutions it dominates, the IMF and the World Bank, who are most avid in pushing "globalization." While other European and OECD countries support one or another element of the globalization conundrum, it is, most importantly, an Anglo-American political project. Third, that if it's the US and other countries of the North who are pushing, it is mainly countries in the South who are being pushed.

Far from eroding the nation state, globalization is the result of actions of particular nation states. "Globalization...is often misunderstood as something imposed by micro-processes, such as the revolution in information technology. A number of sophisticated studies, however, have begun to attribute global economic change to the actions of state authorities as they have set about responding to domestic economic crisis precipitated in turn, by a series of external shocks, by US financial deregulation to support extraordinary levels of deficit financing, and ultimately by prolonged world recession. Once set in train, however, the process of internationalization has acquired a certain momentum of its own-especially in finance. It is in this fourth era of adaptation that we see not only the expansion of capitalism on a world scale, but also the contest of different models of varieties of capitalism, as internationalization proceeds and as the domestically more robust states seek to "externalize" aspects of their own model." (Weiss,1998:11)

The instruments in this global power game, of course, are firstly economic. As the largest importing nations of the world, the US and the European Union countries can leverage access to their markets to pry open markets in the developing countries. Regional economic formations such as the North American Free Trade Association (NAFTA) and the European Union, and the World Trade Organization (WTO) magnify the reach and scope of trade as an instrument, but at the core of these organizational tools is the buying power and size of the domestic markets of the advanced capitalist countries.

The second major instrument is capital, to finance trade, as Foreign Direct Investment (FDI) to increase industrial and agricultural production, and as loans from multilateral banks. Although there are a range of instruments for wielding control over capital flows, the most important is the IMF and its imprimatur, its 'good financial housekeeping seal of approval'. More recently, credit rating agencies such as Standard and Poors have been added to the instruments for enforcing macroeconomic orthodoxy.

Regulatory mechanisms and institutions, the whole legal infrastructure of economic policy in target countries have been radically "reformed". Working with the World Bank and regional banks such as the Asian Development Bank, the IMF pushed more than 60 developing countries to implement structural adjustment reform throughout the 'eighties and stretching into the 'nineties.

Much has been written about structural adjustment and its impact on developing country economies. Its most important components include trade and investment liberalization and macroeconomic stabilization policies. The first removes nationalist restrictions on trade and investment. The second is geared towards cutting government expenditures to limit budget deficit induced inflation, and cutting demand in the economy as a whole through narrow limits on money in circulation. The main goal is the creation of a stable fiscal and monetary environment for foreign trade and investment and during the 1980s, to secure payment of foreign debt to commercial banks.

In the 1990s, the opening up of capital accounts to allow unhindered entry and exit of funds into stock and foreign exchange markets was added to the already toxic structural adjustment policy mix. To attract foreign capital, exchange rates were pegged and steadily pushed to appreciate, and local interest rates kept high. While we cannot say that the IMF wanted weak financial sector regulatory mechanisms, in the heyday of 'emerging markets' rhetoric in the first half of the nineties, regulation was a poor cousin to liberalization. Already weakened by structural adjustment reforms, economies in Asia entered a realm of financial system vulnerability which made them easy victims of the crisis in 1997.

Another source of pressure to facilitate the acceleration of Western penetration of the economies of the South is the wide ranging "governance and democratization" campaign. To facilitate this thrust, specific elements in the Western conception of liberal democracy have been pushed, most importantly, its anti-state bias and the equation of "democracy" with "market". Trade and other forms of liberalization have been packaged as "democratization". Since governments are corrupt and inefficient, the argument goes, democracy can be advanced only if many of the economic functions of government are "privatized" - turned over to the "market".

"Today's renewed focus on the state's role has been inspired by the dramatic events in the global economy which have fundamentally changed the environment in which states operate. The global integration of economies and the spread of democracy have narrowed the scope for arbitrary and capricious behavior. Taxes, investment rules and economic policies must be ever responsive to the parameters of a globalized world economy. Technological change has opened new opportunities for unbundling services and allowing a larger role for markets. These changes have meant new and different roles for government - no longer a sole provider but as facilitator and regulator." (World Bank, 1997:1)

The "Washington Consensus" is the most radical ideological expression of neo-liberalism. It is called the "Washington Consensus" because the main source of ideas and real political and economic pressure is the US government, in particular the US Treasury Department, the Washington Bretton Woods twins, the World Bank and the IMF and Wall Street in New York City where the US' main stock market is. "The Washington Consensus held that good economic performance required liberalized trade, macroeconomic stability, and getting prices right. Once the government dealt with these issues - essentially once the government "got out of the way" - private markets would allocate resources efficiently and generate robust growth." (Stiglitz, 1998b:1)

Apart from the none too subtle pressure of economic and political sanctions, the full panoply of Western, especially ideological promotion has been mobilized in support of the "Washington Consensus". Graduate schools, especially schools of economics and politics promote these ideological propositions in the guise of objective scholarship. International print and broadcast media, long dominated by American companies, all promote the same ideas. The ideological triumphalism of the Washington Consensus reached its height in the years after the collapse of the Soviet Union and the socialist bloc in 1991.

Although "democracy" has always been part of the ideological arsenal of international capital, "democratization" discourse in the 1990s has been strongly influenced by post Cold War conditions. The removal of socialism as an alternative has led to all manner of Western triumphalism, the grossest being Fukuyama's "end of history" conceit. Western style liberal democracy, Fukuyama asserts, is the final goal of political evolution. History, therefore, has ended.

Instead it is Fukuyama's fictional world that came crashing down with the Asian financial crisis. The pre-crisis volume of money in international capital markets will probably return in the not too distant future. What is lost is the sense of limitless power that accompanied the helter skelter growth of capital markets in the early 1990s. Despite attempts by the still considerable number of its promoters in securities companies and business magazines, it has become rather difficult to claim that the market is the most efficient allocator of capital.

What is even more clear is that the ideological hegemony of globalization in its Washington Consensus form is finished. The divergence of IMF and World Bank language on the Asian crisis is startling. Joseph Stiglitz, until recently the World Bank's chief economist, is one of the most articulate and sought after critics of IMF and US Treasury Department orthodoxy. Jeffrey Sachs, architect of Polish 'schock therapy', has criticized every single IMF initiative since the start of the crisis in July 1997. Other critics read like a list of the US' famous and influential: George Schultz, Henry Kissinger, Paul Krugman, George Soros, Martin Feldstein.

The collapse of the Clinton administration attempt to jump start a new round of trade liberalization talks in Seattle is a perfect example of the ideological disarray in the ranks of the leading countries of international capitalism. This was not an occasion for deciding on new trade agreements, mind you, they only had to decide on an agenda for future talks. As impressive as the civil society mobilization against the WTO was, the failure of the Seattle police and the Clinton administration's negotiating team to prepare a game plan for the conference was startling. That Pres. Clinton decided to play to Western civil society groups by pushing the incorporation of labor standards into trade agreements is even more startling.

What happened? Why, more apropos, 'how' did the neo-liberal ideological juggernaut get stopped in its tracks?

Financial Crisis and the Deconstruction of Neo-Liberalism

The enemies of casino capitalism are legion. Seattle provides a microcosm of its victims and competitors. The US push for removing subsidies for agriculture was opposed by the two main competing capitalist centers, western Europe and Japan. Clinton's ill-fated attempt to link labor standards to the WTO was opposed by developing countries led by India. The civil society groups who closed the streets of Seattle included a bewildering array of NGOs and social movement organizations with no unifying politics except feeling victimized by uncontrolled globalization.

What is striking about Seattle is the almost total failure of neo-liberal ideology to provide a frame for a compromise. Disagreements arising out of competitive pressure among leading capitalist countries is not new. In the past, the more powerful countries, more often than not the US, have been able to provide the ideological packaging for a set of pragmatic compromises. In Seattle, no one could devise an ideological formula for a new round of trade liberalization talks because many of the key ideological guideposts of neo-liberalism have been eroded in the bitter debates over the 1997-98 financial crisis.

There is no debate about what happened. In Thailand, Indonesia, South Korea, Malaysia and to a lesser degree, the Philippines, banks were allowed to pile up unhedged dollar loans which made them vulnerable to sudden, large currency devaluations. These banks took advantage of often large interest rate differentials between foreign currency (more often than not, US dollar) interest rates and local currency interest rates. Banks did not hedge their dollar loans because they believed that their governments would maintain policies that kept exchange rates stable.

The same policies tended to push banks towards lending to real estate developers, stock market players and other speculative investors. Pumped up by increasing amounts of foreign funds, real estate and stock market 'bubbles' developed. These 'bubbles' are highly susceptible to developments that interrupt the steady increase in asset prices. In 1997, what let the air out was a real estate glut in Bangkok which made it difficult for developers to pay their loans, which then made it difficult for local banks to pay their foreign loans. This let the air out of a much larger 'bubble', the fast growing, loan financed Thai economy as foreign fund managers pulled their funds out en masse like a bunch of lemmings running to the sea. Lemmings in nearby countries, perhaps believing that 'all Asians bank alike' quickly followed.

What started out as a banking crisis turned currency crisis quickly metastasized into generalized economic disaster. With massive devaluations, even well managed banks and corporations suddenly found themselves unable to pay their dollar loans. Over ambitious, adventurous banks now became ultra conservative in their lending. Panicky governments raised interest rates in a vain attempt to defend local currencies but put loans beyond the reach of many businesses. Many companies closed or retrenched heavily, suddenly putting millions of people out of work. Weak demand then added to this already poisonous cocktail to push economies into deep recession.

While the events of the crisis are indisputable, ascribing responsibility has been bitterly debated. Western media coverage has targeted the Asian NIC model of close government-business co-ordination, redefined as 'crony capitalism ' as the source of the crisis. Following neo-liberal logic, the " source" of the crisis is the state. Because these propositions are, in fact, ideological propositions, they get asserted with varying degrees of connection with reality. In this case, the facts call for opposite conclusions.

In contrast to the Third World debt crisis of the 1980s which was brought on by public sector debt, the Asian crisis of the 1990s is a crisis of the private sector. In the 1980's, principally in Latin America, national economies were plagued by balance-of-payments crisis, budget deficits, high inflation, much of this linked to government profligacy. This time around, Asian governments went into crisis with balanced, often surplus budgets, low inflation rates, high levels of national savings and investment. Governments maintained what economists call good "fundamentals".

What failed here was the market not government. "Speaking in Helsinki on 7 January 1998, the World Bank's chief economist Joseph Stiglitz [was quite explicit] in saying that "financial markets do not do a good job of selecting the most productive recipients of funds or of monitoring the use of funds and must be controled." (Bullard,1998:41) George Soros, understandably, is not a hard line critic of financial markets, but he says that "...financial markets, far from tending towards equilibrium, are inherently unstable. A boom/bust sequence can easily spiral out of control, knocking over one economy after another." (Soros,1998:2)

Identifying the locus of the Asian crisis is a crucial issue because it lies at the root of the debate on the IMF formula for dealing with the crisis. IMF critics say that the IMF formula is geared towards solving a 1980s type crisis of the public sector, not the market crisis of the 1990s. The components of the formula all call for actions in the public sphere: Central Banks raising interest rates to prevent speculation on the local currency, governments cutting subsidies and other expenditures to keep inflation low, legislatures passing yet more liberalization and privatization laws to entice foreign investors to come back.

Despite the efforts of the IMF to make it appear as if its conditions for rescue packages are unquestionably the only possible steps that can be taken if countries in the region want to recover, many political questions have been raised. The many dimensions of "who pays" for and in the wake of these rescue efforts are imminently political questions. High flying bankers may be having difficulty making payments on their condominium loans and BMWs, but IMF austerity measures, tighter monetary and budget parameters and high interest rates, hit smaller businesses and poorer segments of the population a lot more.

"Understanding these crises is important because their social costs are not insignificant. These types of crises have always tended to be resolved by using taxpayer resources and through higher unemployment and lower growth so that the costs have been borne mostly by those whose incomes are not based on asset holding...these costs as a proportion of GDP have been as low as 8 percent and as high as half of GDP. In the case of Thailand, estimates of the extent of non-performing loans have been as high as US$40 billion, which is equivalent to about 15 percent of Thai GDP." (Montes, 1998:7)

What to do with bank debt, that of borrowers from the region and their creditors, is also an intensely political issue. Economists refer to this as a "moral hazard" issue. The existence of a number of guarantees on bank transactions, national and international alike, lessens the risks from lending and contributes to debt crisis, both on public debt as in the 1980s or private debt in the current crisis. If bankers believe that governments will bail them out, they are not likely to exercise much care in their lending decisions.

Filipinos are particularly sensitive to this issue because of the way foreign creditors took advantage of a financially strapped Aquino government in 1986-87 and forced it to transform private debt, a lot of it incurred by Marcos and his cronies, into public obligations. If banks, local bank borrowers and foreign lenders, get bailed out with public funds at a time when social service budgets are being squeezed, the political outcry is likely to be deafening.

A potentially even more explosive political issue attendant to IMF conditions for bailout funds is the possibility of massive redistribution of corporate assets in favor of foreigners. Taking advantage of the extreme weakness of the region's economies and the vulnerability of regional governments, the IMF has played hardball and insisted on further opening up local economies in exchange for bailout funds. This is not just your usual liberalization situation. Large chunks of the region's banking and corporate sectors are technically insolvent and, with further liberalization, up for grabs. Potential western buyers have a double advantage, bargain basement prices and dollars bloated by depreciation of local currencies.

In the past two years, developments have "resolved" some of the most bitter debates. Where its initial bailout packages emphasized the standard Washington Consensus formula of government budget cutbacks, the IMF has been acquiescing to higher budget deficits to reflate economies. Another Washington Consensus basic principle, cutting government subsidies, has been set aside as foreign ODA donors scramble to finance government programs to alleviate hunger and other gross manifestations of sudden descent into poverty.

IMF representatives in Asia have even been quoted to say what in early 1997 would have been heinous heresies, that under certain conditions temporary controls on capital flows may be necessary. In September 1998, IMF Asia Pacific Director Hubert Neiss said short-term capital controls were being adopted in Asia to make it difficult for banks to runup short term debts to foreigners, all apparently with the IMF's blessings. (Manila Times, 15 September 1998) By 1999, a few IMF officials were even saying that Malaysian Prime Minister Mahathir Mohammad's reimposition of capital controls may not have been such a bad thing after all.

The debates also offer possible advances in dealing with some theoretical issues related to state and market dynamics. On the one hand, the Asian crisis would seem to "prove" the vulnerability of national economies and their governments to the destructive winds of globalization. On the other, the failure of financial markets has reversed a strong pre-1997 trend towards liberalization of financial flows. It brought on the current trend towards regulating financial flows and designing a new "architecture" for international finance. The supposedly much weakened state has taken on major new powers and acquired massive banking and financial assets in its efforts to clean up the mess.

There is another dimension to the issue of democracy and the Asian crisis that is seldom mentioned in media reports, the role of the IMF. What there is a lot of is controversy over the economic wisdom of 'conditionalities' linked to IMF rescue packages. Where the politics of the IMF role is raised, it is often in a positive light. IMF pressure on Suharto comes off as the IMF pushing for democracy in Indonesia. In fact, I would argue that the political impact of the IMF role is distinctly anti-democratic.

Macroeconomic policy is one of the most important areas of policy in government because it affects everyone in the country. In a democracy, setting the framework of macroeconomic policy should be the subject of wide ranging discussion. In countries under the IMF thumb, this area of policy is closed off to the public. The IMF demands transparency of everyone except itself; accountability where it cannot be made accountable because it does not belong to the polities it intervenes in.

Martin Feldstein, Professor of Economics at Harvard University and President of the National Bureau of Economic Research, and former adviser to US President Ronald Reagan, is very critical of the IMF. "...the Fund should not use the opportunity of countries being 'down and out' to override national political processes or impose economic changes that 'however helpful they may be... are the proper responsibility of the country's own political system...a nation's desperate need for short-term financial help does not give the IMF the moral right to substitute its technical judgements for the outcomes of the nation's political process. (Bullard, 1998:41)

The Fund has also been attacked for its intellectual arrogance in applying the same solution, regardless of the problem and for applying bilateral agreements to solve a regional problem. According to Joseph Stiglitz, the main problem is the belief that "political recommendations could be administered by economists using little more than simple accounting frameworks, leading to the situation where "economists would fly into a country, look at and attempt to verify these data, and make macroeconomic recommendations for policy reforms, all in the space of a couple of weeks." (Bullard,1998:42)

Challenging American Hegemony

While objective conditions would seem to resolve many of these issues, in practice they have not been resolved because these issues have been "ideologized". Certain propositions, about inflation, government budgets, monetary parameters and other economic policy issues are stated not with the power of theory or empirical evidence, but the economic and political power of governments pushing other governments to adopt specific policies. Used this way, these propositions do not allow nuance much less the possibility of reversal when confronted with contrary empirical data or superior theoretical propositions.

Discourse on these issues, therefore, has to go beyond texts. We have to enter arenas that economists are loathe to enter, the arena of power and power agendas, of national interests and the clash of these interests. The failure to put in place regulatory mechanisms to control financial flows and prevent financial crisis can only be explained by American obstruction, by the fact that it is the US economy that benefits from the current situation. Working closelywith the IMF, the Clinton administration is devising proposals that will limit the damage to liberalization of financial flows achieved in the years before 1997. Underestimating the extent of the damage, the IMF has even devised proposals for advancing liberalization through enforced transparency in financial transactions and acquiring the power to force capital accounts liberalization on its members.

Nervously looking to see how Uncle Sam reacts, Asian and European governments led by Japan and Germany began exploring ways of dealing with the crisis and with the regulation of international financial flows independent of American proposals in 1997 and 1998. Japan, for example, proposed setting up an Asian Monetary Fund to provide governments in the region the money for fighting back speculative attacks on their currencies. The Japanese and key European governments also proposed a mechanism for limiting the volatility in the value of the US dollar, the Japanese yen, and the Euro. Both proposals were meekly withdrawn when the Americans objected.

This situation is likely to change in the coming years. American dominance in shaping neo-liberal discourse and more importantly, their policy components is a product of American economic dominance. The heydays of globalization hype in the 1990s were also years of rapid growth of the US economy and great difficulty for its main rivals, Japan and Germany. Although its pace and dimensions is not certain, it is likely that the situation will be reversed in the coming years. What is certain is an American economic slowdown. The Japanese economy is now generally perceived to have passed its long recession and entered a new period of growth.

Western Europe has been affected by the Asian crisis even less than the US, and looks set to enter a period of more rapid economic growth. The turmoil in international currency markets brought on by the Asian crisis will accelerate the Euro's development as a competitor to the US dollar despite its rocky first year. The return to power of social democratic parties in all but two of the member countries of the European Union means the end of the Thatcherite, anti-welfare state ideological hegemony. The Germans have begun to work with the French to lower interest rates, pay less attention to inflation and more to pump priming economies to deal with serious unemployment.

Disagreements between Asians, especially the Japanese and the Europeans with the Americans on economic and political issues is not new. Its not just that European and East Asian capitalisms are different from American capitalism, their different locations in the international capitalist system generate different interests and ideological vantage points. The unquestioned hegemony of neo-liberalism starting in the 1980s and especially after the collapse of the socialist bloc blunted competition between the three capitalist centers and assured American dominance. The ideological crisis of neo-liberalism in the aftermath of the 1997-98 financial crisis will intensify ideological contention.

The debacle in Seattle is a good example of this intensifying ideological contention. The issue of American and European agricultural subsidies was "resolved" sufficiently to allow the conclusion of the Uruguay Round of GATT negotiations which led to the creation of the WTO. This time the Japanese and Europeans not only defended agricultural subsidies despite American objections, they also pushed the debate into new territory by insisting that defending agriculture is necessary for the cultural integrity of their countries. Linking labor standards with the WTO generated a different divide pitting advanced capitalist countries against less developed countries.

"The WTO talks broke down after wealthy nations refused to retreat from entrenched positions. The European Union insisted on talks on new global rules on investment, Japan wanted the US to negotiate on weakening its rules that block imports. But the US made the most demands and refused to back down on issues essential to its labor allies. The US wanted some procedure by which the WTO would look at labor issues - even a vague process - and also insisted that it wouldn't speed up cuts in textile quotas. Developing nations wouldn't go along with either requirement." (Cooper,1999)

The success of the NGO and social movement offensive against the WTO in Seattle was facilitated by these deep disagreements among governments. Police mishandling helped. "Tear gas, rubber bullets and police sweeps, the object of incessant Nmedia coverage, are the outward signs of impending change - that the guardians of the social order have grown afraid." (Bacon,1999) But the NGOs themselves were divided. Southern NGOs, for example, tended to support southern governments who resisted linking labor standards with trade. Northern NGOs took the opposite position in support of the Clinton proposal.

There is also increasing disagreement among leading capitalist countries on how to reform the IMF. Battered by criticism from both ends of the ideological spectrum, the IMF is in the throes of major change, creating conditions for disagreement in the process. At the meeting of G20 countries in Berlin in mid-December 1999, for example, German and Japanese representatives led opposition to an American proposal to limit the IMF to emergency lending. The resignation of French Managing Director Michel Camdessus is widely interpreted as a result of his identification with the old-style IMF.

The nomination of Eisuke Sakakibara to Camdessus' position is another example of the sorry ideological state of the IMF. That the Japanese government, backed by other East and Southeast Asian governments, would nominate anyone at all is already proof of a new state of affairs. By tacit agreement, the head of the IMF is supposed to be European while that of the World Bank is an American or at least nominated by the Americans. Sakakibara does not have a chance to actually become IMF Managing Director. Given his political persona, selecting Sakakibara for nomination was giving a big political "finger" to the US.

Sakakibara is the closest thing to an Asian IMF bete noir. When he was Deputy Minister of Finance in 1997-98, at the height of the financial crisis, he was the highest ranking Japanese official who was openly critical of the IMF program for dealing with the crisis. He was the architect of the Asian Monetary Fund proposal. Dubbed "Mr. Yen" by media, Sakakibara engineered the government intervention which depreciated the yen against the dollar, a big Washington Consensus "No, No". Japanese progressives, however, accuse him of being an old-style nationalist who would create a modern day "Greater East Asia Co-Prosperity Sphere." (Landers, 1999)

Seattle and Sakakibara

"The Seattle events," a statement by representatives of Filipino NGOs and social movement groups point out, "are a confluence of two politically significant factors: the massive and popular street protests that denounced the WTO and the whole "free trade" dogma; and the disunities and contradictions within the WTO itself that eventually led to the collapse of the trade talks. In both counts, i.e. both inside and outside the WTO convention hall, the US failed to bully its way through."

This balanced statement by Philippine anti-WTO activists provides contrast to the more characteristic extravagance of NGO claims about its Seattle victory. Two major factors account for the maximum impact achieved by NGOs. "The non-governmental organisations (NGOs) that descended on Seattle were a model of everything the trade negotiators were not. They were well organised. They built unusual coalitions (environmentalists and labour groups, for instance, bridged old gulfs to jeer the WTO together). They had a clear agenda-to derail the talks. And they were masterly users of the media." (Economist,1999)

Another factor is the NGO organizational technique for attacking targets such as the WTO which makes it very difficult for governments to suppress. "This phenomenon - amorphous groups of NGOs, linked online, descending on a target-has been dubbed an "NGO swarm" in a RAND study by David Ronfeldt and John Arquilla. And such groups are awful for governments to deal with. An NGO swarm, say the RAND researchers, has no "central leadership or command structure; it is multi-headed, impossible to decapitate". And it can sting a victim to death." (Economist,1999) This organizational technique has been made possible by the internet which enables NGOs to organize international coalitions quickly and cheaply through e-mail.

"The battle of Seattle is only the latest and most visible in a string of recent NGO victories. The watershed was the Earth Summit in Rio de Janeiro in 1992, when the NGOs roused enough public pressure to push through agreements on controlling greenhouse gases. In 1994, protesters dominated the World Bank's anniversary meeting with a "Fifty Years is Enough" campaign, and forced a rethink of the Bank's goals and methods. In 1998, an ad hoc coalition of consumer-rights activists and environmentalists helped to sink the Multilateral Agreement on Investment (MAI), a draft treaty to harmonise rules on foreign investment under the aegis of the OECD. In the past couple of years another global coalition of NGOs, Jubilee 2000, has pushed successfully for a dramatic reduction in the debts of the poorest countries." (Economist, 1999)

The lines of division in Seattle did not cut cleanly between governments inside the conference, and NGOs and social movement groups outside, on the streets. The Clinton administration proposal to link environmental and labor standards to WTO trade sanctions was supported by Northern labor and environmental groups and opposed by similar groups in the South. Apart from sharing southern government fears that environmental and labor standards would be used to limit their exports' competitive advantage, southern NGOs also believe that "Clinton's agenda on these issues is a hypocritical and a double-bladed weapon intended to give the WTO extra powers in micro-managing the economies of third world nations in addition to what the IMF and the World Bank have already been doing." (Philippine Statement,1999)

It is important to bring out this distinction because "civil society" political culture prefers the shaping of issues in simple, universalistic terms. Civil society discourse tends to see "globalization" as an unmitigated evil that affects all countries, and all classes within countries the same way, excluding of course its promoters. This and other simplifications is greatly tempting at the grassroots level and for mass movement mobilizations. It facilitates "NGO swarms" such as the "Battle of Seattle". But simplification of issues actually feeds into the anti-state bias of neo-liberalism by bypassing the nation-state. It underestimates the wide variety of state-civil society engagements in many countries of the South.

This simplistic perspective will make it difficult to understand the significance of the Sakakibara nomination to the IMF and to get an accurate reading of the terrain within which civil society groups will struggle on international economic issues. Asian civil society groups do not know Sakakibara because they tend to see the Japanese government as a "junior partner" of the US in the region. Such dismissive perspectives also apply to regional groups such as the ASEAN and extends to the governments of the region. There is enough "truth" in this perspective to make it credible especially to grassroots groups who only do occasional international work. But imposing it as the only "politically correct" perspective severely distorts perception of the terrain for those groups who regularly operate in the international arena.

This is a problem at any time, but especially now when the terrain is rapidly changing. In the midst of the 1997-98 financial crisis, it was difficult for governments in the region to cross the US because they were dependent on IMF bailout funds and on the American market for exports. With the economies badly affected by the financial crisis now back on their feet, and with Japan now recovering from its almost decade long recession, the economic power equation is going to change. This change will become even more pronounced once the American economy starts decelerating.

This changing power equation is already having an impact on the way the region's governments look at their relations with the rest of the world. APEC (Asia Pacific Economic Cooperation), the American project for roping the region closer to itself, is going nowhere. ASEM (Asia Europe Meeting), a framework for Asia Europe economic and political cooperation is moving slowly because of the European Union's preoccupation with its expansion, but is in place to balance American power in Asia. Most importantly, the East Asian Economic Caucus (EAEC), Mahathir Mohammad's vision for an East and Southeast Asian regional formation without the United States is slowly taking shape as the ASEAN Plus 3 grouping. Initiated by Mahathir in 1997, the meeting of ASEAN heads of state together with those of China, Japan and South Korea has now been institutionalized into an annual affair.

It was the ASEAN Plus 3 summit in Manila in November 1999 which supported the nomination of Sakakibara to head the IMF. The meeting also began discussions for a regional formation that would unite East and Southeast Asian economies. "The ASEAN Free Trade Area (AFTA) will gradually be expanded into an East Asia Free Trade Area. Movement toward such a goal can be seen in the recent agreements between Japan and South Korea, and Japan and Singapore to begin discussion of bilateral free trade agreements. Singapore has made a similar proposal to South Korea." (Koh,1999)

Civil society groups in the region cannot ignore these pivotal changes. They will affect the economies of the region, their governments, and in the end, the constituencies of NGOs and social movement groups. Being aware of these changes, and factoring them into civil society assessments of the political and economic terrain is the first step. For East and Southeast Asian NGOs and social movement groups, the next step is deciding how important location is in their decisions on positioning on international issues. Siding with their governments on the issue of WTO and labor standards is a good example. Another issue that will be placed on the international civil society agenda soon is the admission of China to the WTO, a step promoted by the Clinton administration, but opposed by American labor groups. Developing Asian civil society positions on these issues is important because Northern NGOs have tended to dominate in the setting of the agenda for international civil society.

The key question is how Asian progressives look at the geo-political/economic repositioning that is only now beginning. One perspective is that these developments are not important for progressives because all of these governments are dominated by capitalists anyway. Progressives should oppose all of their initiatives, whether it is APEC, ASEM or ASEAN. Another perspective is that diminishing American power in East and Southeast Asia, and the evolution of countervailing power blocs, whether it is an Asia-Europe alliance, or even better, a more assertive Asian bloc is a positive development for progressives. In general, a multi-polar world is better than one dominated by one hegemon, an arrogant, triumphalist United States.

Without an understanding of the ongoing regional bloc repositioning, and developing a specific perspective in support of a multi-polar world, Asian progressives cannot play an active role in shaping the ideological framework of such a new, multi-polar world. There are a number of issues pushed by Asian governments that can be supported by Asian progressives. Support for the Asian Monetary Fund idea of Sakakibara, for example, means weakening the IMF's hold on governments in the region. The Asian-European proposal for a mechanism to control volatile fluctuations in the value of the three main currencies, the dollar, yen and Euro is worth considering for progressive support.

There are also political issues that will go into the re-fashioning of the ideological thrust of international capital in the 21st century. While the financial crisis has had a distinct democratizing effect on the region, the old authoritarian "Asian values" discourse still has supporters in the region. Mahathir and Lee Kuan Yew are still around. Malaysia and Singapore remain semi-authoritarian states. Burma is still an outright military dictatorship. The advancement of democracy in the region, winning struggles in authroritarian states cannot be done without active, progressive civil society involvement.

In the end, progressives in the region will have to supplement the 'civil society as watchdog' perspective with developing the political parties needed to win control over governments through elections. Victories such as in Seattle are deeply satisfying. But outside of media hype, the civil society role in defeating the WTO in Seattle could not have happened without the disarray in leading government ranks. As long as Asian progressives do not control their national governments, they will continue to be forced into reacting to the Sakakibaras who do. They will not be able to translate their progressive visions into policies for their governments.

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