Not quite fiscal Darwinism

[valis <valis@xxxxxxxxxx>]

====> It's hard to say whether anything new appears in this article,
      which I edited out of a horribly misformatted post in the
      World Systems list.  This deputy secretary of the Treasury in
      Clinton I seems to say that the depredations of unbridled
      currency speculation are part of the natural order of things,
      hence to be somehow complemented rather than fought.
      However, he also implies that, personally, his highest object
      of metaphysical loyalty remains the sovereign state.
      For the sake of authenticity I left in a confusion of forwarding
      headers, etc.
                                                                valis


From: "DR. PHUA KAI LIT" <phuakl@xxxxxxxxxx>
To: wsn@xxxxxxxxxxxxxxxx
Date: Tue, 16 Dec 1997 09:56:51 +0000
Subject: No Country Is Beyond the Financial Markets' Power

------- Forwarded Message Follows -------
To:            sangkancil@xxxxxxxxxxxx
Date:          Wed, 10 Dec 1997 13:35:48
Subject:       [sangkancil] Lee/Mahathir:  No Country Is Beyond the Financial
Markets' Power. (fwd)
From:          pillai@xxxxxxxxx (M.G.G. Pillai)
Reply-to:      pillai@xxxxxxxxx (M.G.G. Pillai)


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FORWARDED MAIL -------
From: andreid@xxxxxxxxxxxxxxx (Andrei)
Date: 09 Dec 97
Originally Posted On: soc.culture.malaysia

Top Stories from the Editorial/Opinion pages of the
                  International Herald Tribune,
                  Wednesday, December 10, 1997

                  No Country Is Beyond the Financial
                  Markets' Power


                  By Roger C. Altman LAT

WASHINGTON - The film ``Independence Day'' depicts gigantic
and terrifying spaceships appearing over the key capitals of the
world. Large enough to block the sun, they hover, silently, just above
the tallest buildings.

Confused and frightened citizens pitifully try to befriend them, but the
alien vessels unleash rays of terrible force, obliterating the cities in
minutes.

In the last six months, global financial markets similarly have trained
their fire on the capitals of East Asia. One by one, from Bangkok to
Seoul, they have crushed previously stable currencies.

In their wake, they left soaring interest rates, tottering banking
systems and slowing economies. Governments have been destabilized.
The previously muscular ``Asian tigers'' have been crippled, and India
may be next.

This devastation suggests that world financial markets have emerged
as a form of supranational government for the 21st century.

They are not elected and do not convene. But as virtually all nations
join the global economy, their finances are subject to the markets'
rulings. Their currencies, which must be reasonably stable to promote
national growth, are always on trial.

So is their access to international borrowing markets to finance
exports and infrastructure. When these markets' verdict is negative,
changes in national economic policies are forced, and entire
governments can be powerless.

Increasingly, the International Monetary Fund is the only counterweight.
It alone can assemble the resources necessary to financially rescue
decimated nations. It alone has the political and territorial
independence to demand tough financial reforms from the victim nation.

But questions now are being raised about whether even the IMF can
withstand such overwhelming financial forces.

The most recent demonstration of the markets' awesome power began
last summer.

For years, the leading nations of East Asia had been lionized as icons
of growth. Their typical blend of high savings and investment with
relatively autocratic economic and political rule had been hailed as
the ideal recipe for developing nations. And their GDP growth rates,
6 to 8 percent annually in recent years, had been remarkable. But in
July the foreign exchange markets became disenchanted with this
region, beginning with Thailand.

Waves of selling battered its currency, which fell an astounding
40 percent against the dollar in three weeks. That made it hugely
expensive for the country and its private borrowers to pay off their
vast, dollar-denominated debt. The cost of imports soared.
The central bank exhausted its reserves trying to defend the currency,
and Thailand, in effect, went bankrupt.

Its government fell, and the IMF stepped in with a $17 billion
package of emergency financing, conditioned on austerity measures.

As they invariably do, the markets had grasped what no one else had
yet seen: Thailand was financially sick. Thais had been running up
huge debts, mostly in dollars, and depending on the stability of their
currency to repay them.

In particular, urged on by the political leadership, banks were
shoveling loans into unprofitable and crony-controlled ventures.

The global markets next turned thumbs down on Malaysia, Indonesia
and the Philippines in quick succession. They saw similar flaws in
these economies. They drove the currencies and stock markets to
drastically lower levels.

Then, like a spreading storm, this market opprobrium descended
onto South Korea.

The markets flexed their muscles, and the tigers were turned into goats.

This power stems from profound changes in technology, global liquidity
and the culture of investment performance.

Technology now permits information to be disseminated instantaneously
worldwide and transactions to be executed electronically from any fully
equipped terminal.

In addition, huge capital flows are professionally managed for maximum
investment results. The result often is mass capital movements,
favoring a nation or abandoning it. The verdicts cannot be appealed.

No nations are truly protected against these market rulings.

In 1979, then President Jimmy Carter submitted a long-awaited budget
that displeased the global currency markets. The dollar collapsed.
Within two weeks, Mr. Carter retreated and submitted a new, tighter
budget to Congress.

Five years ago, British Prime Minister John Major, facing jittery
markets, stood defiantly outside 10 Downing Street and vowed that
Britain would not delink its pound from the key European currencies.
Within days, after world markets crushed the pound, he reversed
course in humiliating fashion.

These global markets are mostly unregulated today, and that is not
likely to change.

The domestic activities of larger U.S. and European financial
institutions are supervised by central banks and other agencies,
but their international trading and investment businesses are
largely unconstrained.

Moreover, the armies of mutual funds and other investment vehicles
are largely unregulated. There is nothing illegal or unfair about
their decisions.

The right focus, instead, is on the IMF. It is the emergency financier
for faltering governments and the architect of austerity measures for
their financial recovery. But the IMF should develop a better
early-warning system.

In the Mexican collapse of 1995 and in this year's East Asian crisis,
it issued no warnings to the nations involved.

The industrialized world must also ensure that the IMF has the
necessary financial resources, however large, to prevent full-fledged
collapses. Otherwise, the entire global financial system could be at
risk.

In ``Independence Day,'' the U.S. president personally leads a fighter
squadron to destroy the alien ships. But global financial markets are
invisible and beyond the reach of political leaders.


        The writer was U.S. deputy Treasury secretary in 1993 and 1994.
        He contributed this comment to the Los Angeles Times.

http://www.iht.com/IHT/TODAY/WED/ED/edroger.html

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