The currency turmoil in Southeast Asia is spreading. It started in Thailand but quickly engulfed neighbouring countries Indonesia and Malaysia as well. Hong Kong was next followed by South Korea. Now Japan, a major economic pillar of the region, is reeling from successive blows. Its fourth largest brokerage firm, Yamaichi Securities closed its doors on November 23 because of a crisis generated by a credit crunch, shrinking business and high profile scandals. Three days later came more bad news; Tokoyu City bank announced that it was unable to meet its obligations and was closing.
It would be naive to assume that the problem is limited to the Southeast Asian region. The International Monetary Fund (IMF) has already announced bail-out packages for the region amounting to US$188 billion. This is far greater than anything given to shore up Mexico’s economy three years ago. There are deep structural problems in the western financial system. The domino effect is truly taking its toll. Who will be next is the billion dollar question.
One must agree with Malaysian prime minister Mahathir Mohamed’s analysis about the underlying philosophy that the market knows best is not sound. He compared this to the dogma of communism. ‘Surrender your independence to those who know best and you will prosper. This is the creed of the market,’ he told businessmen at the Asia Pacific Economic Co-operation (APEC) forum in Vancouver on November 23. ‘Thus the swing from the government knows all ... to the market can do no wrong ... is now as extreme as communism and socialism of yesteryear.’
Interestingly, the APEC summit in Vancouver was consumed by coping with the currency crisis rather than basking in the glow of booming economies and the smug ‘nothing can go wrong’ attitude of the past. In bilateral meetings, leaders of the 18 members sought to hammer out key points in their response to the Asian economic crisis. Their foreign and trade ministers announced an agreement to break down barriers in some trade sectors. The liberalization pact had been widely expected, but it was seen as an important morale booster for now-humbled Asian ‘tiger economies’ like South Korea. The Koreans, who boast the world’s 11th biggest economy, were forced on November 21 to seek emergency aid from the IMF.
From APEC leaders to the head of the IMF, everyone is trying to issue soothing noises. All is well, that it is only a temporary hiccup and that we will overcome this crisis, are oft-repeated mantras. Their message is, trust us, we know what is best for you. But people are not so sure. The last four months have proved every economic expert wrong. True, in Thailand, the real estate market was over-valued, there is also widespread corruption there as there is in Indonesia and Malaysia. This is not new. There is also widespread corruption in America, perhaps on a much grander scale. Some of its banks are dangerously exposed. Remember the Savings and Loans scandal which will cost the American tax-payers $90 billion?
How many more economies will the IMF bail out before it runs out of money? Ultimately, it is the usurious economic system that is at the root of the problem. Speculators chasing paper money and making paper profits without producing the goods is what is catching up with reality. We are not alarmists. One thing, however, is clear: the western economic system is in deep trouble and very soon, there will be no money left to bail out any more countries. Even western experts are beginning to admit that the situation is as bad as 1929 when the big crash occurred. This time the effect will be far greater because of globalisation. Once one country defaults, it will have a domino effect throughout the financial system.
The prospects for the west’s economic future do not look good. Is it any wonder that the US and Britain have been involved in a mad scramble to lay their hands on the mineral resources of Africa. Unlike paper money, that is real wealth which will shore up an economy if and when the crunch comes.
Muslimedia: December 1-15, 1997