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﻿<title﻿>﻿New Socialist Magazine, Asian Crisis Hits Western Markets - Article﻿</title>﻿

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﻿<b﻿>﻿Asian Crisis Hits Western Markets

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by David McNally﻿<br﻿>﻿

﻿<i﻿>﻿New Socialist Magazine, December 1997 - January 1998﻿</i>﻿<br﻿>﻿<br﻿>﻿<br﻿>﻿

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Asia's financial crisis rocked western stock markets in late October, reminding commentators that not everything is perfect in the world economy at the moment.

﻿<br﻿>﻿<br﻿>﻿

The Asian crisis signals a significant slowdown in world economic growth. But how serious are the blows that have been inflicted on the global system?

﻿<br﻿>﻿<br﻿>﻿

To make sense of what's happened, we need to put the dimensions of the crisis in some perspective. Since the summer, a meltdown has been happening to the currencies and stock markets of a number of countries often considered "Asian tigers" for their rapid economic growth in recent years. Thailand, South Korea and Indonesia have been at the center of the storm.

﻿<br﻿>﻿<br﻿>﻿

Recognizing that things were going from bad to worse, the International Monetary Fund (IMF) floated a $17 billion (US) loan to Thailand in August to prop up the country's currency and its financial markets. The Thai loan was the largest extended by the IMF since the near-collapse of Mexico's financial system in 1994-95. Yet, by late October the IMF was forced to extend an even larger loan, lending $23 billion (US) to Indonesia.

﻿<br﻿>﻿<br﻿>﻿

The Asian crisis has a number of similarities with those that rocked countries like Mexico, Brazil and Poland in the 1980s when the term "world debt crisis" shot into headlines around the world. Throughout the 1990s, the authoritarian governments of the "Asian tigers" borrowed heavily on global markets to finance large investment projects. Their hope was that state repression could insure low wages and a strike and union-free environment that would prove attractive to international capital. They were proved right. As investment capital flowed in, these governments borrowed huge amounts to improve airports, roads, telecommunications systems and to build luxury hotels.

﻿<br﻿>﻿<br﻿>﻿

But, as inevitably happens under capitalism, at the first sign of problems it became obvious that some of these huge loans would be difficult to sustain. Indonesia, for example, has at least $80 billion in foreign debt and much of it comes due for repayment in the next 12 months. Sensing danger, world investors started to pull funds out of the Indonesian banks and stock market this summer, just as they had done earlier to Thailand.

﻿<br﻿>﻿<br﻿>﻿

Enter the IMF. As it has time after time, the IMF extended loans in exchange for promises of major cuts to government spending and layoffs of thousands of government employees. That spells further financial hardship for the local populations - but not, of course, for capital.

﻿<br﻿>﻿<br﻿>﻿

﻿<b﻿>﻿Will the Crisis Spread?﻿</b>﻿

﻿<br﻿>﻿<br﻿>﻿

On October 27th, a panic hit western stock markets as investors realized that the crisis could not be entirely contained within Asia. While a major financial crash in the West seems unlikely at the moment, and stock markets have stabilized, it's clear nevertheless that the world economy is in a classic capitalist dilemma: global overinvestment is leading to the shelving of further investment plans, which in turn causes layoffs and slow growth.

﻿<br﻿>﻿<br﻿>﻿

The Japanese economy, already reeling as a result of a crash in its banking system, will be hit especially hard since 40 per cent of its trade is with the Asian economies. This can only have a dampening effect on the world economy since Japan was its most vigorous component during the 1980s.

﻿<br﻿>﻿<br﻿>﻿

Furthermore, North America and Europe will feel direct effects too as cheap Asian imports (a result of huge declines in their currencies) push down sales by western firms.

﻿<br﻿>﻿<br﻿>﻿

Anticipating these effects, major layoffs have already been announced by a number of North American firms. Since the end of the summer, Kodak, Fruit of the Loom, Whirlpool, Citicorp and Levi Strauss have sent out layoff notices to 35,000 workers. It's likely that even bigger job cuts will soon be in the works.

﻿<br﻿>﻿<br﻿>﻿

So, while it's probably not the beginning of a huge global slump, it's clear that we can expect a slowdown in the world economy. Then Asian crash has thus revealed that all the hype about a new golden age of capitalism is nonsense. Welcome back, then, to the same old harsh realities: a system driven by profit and competition careening out of control with workers and the unemployed paying the price.

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