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Vajpayee on nuclear blasts Irise to inform the House of momentous developments that have taken place while we were in recess. On 11 May, India successfully carried out three underground nuclear tests. Two more underground tests on 13 May completed the planned series of tests. I would like this House to join me in paying fulsome tribute to our scientists, engineers and defence personnel whose singular achievements have given us a renewed sense of national pride and self-confidence. Sir, in addition to the statement I make, I have also taken the opportunity to submit to the House a paper entitled 'Evolution of India's Nuclear Policy'. In 1947, when India emerged as a free country to take its rightful place in the comity of nations, the nuclear age had already dawned. Our leaders then took the crucial decision to opt for self-reliance, and freedom of thought and action. We rejected the Cold War parading and chose the more difficult path of non-alignment. Our leaders also realised that a nuclear-weapon-free-world would enhance not only India's security but also the security of all nations. That is why disarmament was and continues to be a major plank in our foreign policy. During the 50's, India took the lead in calling for an end to all nuclear weapon testing. Addressing the Lok Sabha on 2 April, 1954, Pt. Jawaharlal Nehru, to whose memory we pay homage today, stated 'nuclear, chemical and biological energy and power should not be used to forge weapons of mass destruction'. He called for negotiations for prohibition and elimination of nuclear weapons and in the interim, a standstill agreement to halt nuclear testing. This call was not heeded. In 1965, along with a small group of non-aligned countries, India put forward the idea of an international non-proliferation agreement under which the nuclear weapon states would agree to give up their arsenals provided other countries refrained from developing or acquiring such weapons. This balance of rights and obligations was not accepted. In the 60's our security concerns deepened. The country sought security guarantees but the countries we turned to were unable to extend to us the expected assurances. As a result, we made it clear that we would not be able to sign the NPT. The Lok Sabha debated the issue on 5 April, 1968. Prime Minister late Smt. Indira Gandhi assured the House that 'we shall be guided entirely by our self-enlightenment and the considerations of national security'. This was a turning point and this House strengthened the decision of the then Government by reflecting a national consensus. Our decision not to sign the NPT was in keeping with our basic objectives. In 1974, we demonstrated our nuclear capability. Successive Governments thereafter have taken all necessary steps in keeping with that resolve and national will, to safeguard India's nuclear option. This was the primary reason behind the 1996 decision for not signing the CTBT, a decision that also enjoyed consensus of this House. The decades of the 80's and 90's had meanwhile witnessed the gradual deterioration for our security environment as a result of nuclear and missile proliferation. In our neighbourhood, nuclear weapons had increased and more sophisticated delivery systems inducted. In addition, India has also been the victim of externally aided and abetted terrorism, militancy and clandestine war. At a global level, we see no evidence on the part of the nuclear' weapon states to take decisive and irreversible steps in moving towards a nuclear-weapon-free-world. In stead, we have seen that the NPT has been extended indefinitely and unconditionally, perpetuating the existence of nuclear weapons in the hands of the five countries. Under such circumstances, the Government was faced with a difficult decision. The touchstone that has guided us in making the correct choice clear was national security. These tests are a continuation of the policies set into motion that put this country on the path of self-reliance and independence of thought and action. India is now a nuclear weapon state. This is a reality that cannot be denied. It is not a conferment that we seek; nor is it a status for others to grunt. It is an endowment to the nation by our scientists and engineers. It is India's due, the right of one-sixth of human-kind. Our strengthened capability adds to our sense of responsibility. We do not intend to use these weapons for aggression or for mounting threats against any country; these are weapons of self-defence, to ensure that India is not subjected to nuclear threats or coercion. We do not intend to engage in an arms race. We had taken a number of initiatives in the past. We regret that these proposals did not receive a positive response from other unclear weapon states. In fact, had their response been positive, we need not have gone in for our current testing programme. We have been and will continue to be in the forefront of the calls for opening negotiations for a Nuclear Weapons Convention, so that this challenge can be dealt with in the same manner that we have dealt with the scourge of two other weapons of mass destruction Ñ through the Biological Weapons Convention and the Chemical Weapons Convention. Traditionally, India has been an outward looking country. Our strong commitment to multilateralism is reflected in or active participation in organisations like the United Nations. This engagement will continue. The policies of economics liberalisation introduced in recent years have increased our regional and global linkages and my government intends to deepen and strengthen these ties. Our nuclear policy has been marked by restraint and openness. We have not violated any international agreements either in 1974 or now, in 1998. The restraint exercised for 24 years, after having demonstrated our capability in 1974, is in itself a unique example. Restraint, however, has to arise from strength. It cannot be based upon indecision or doubt. The series of tests recently undertaken by India have led to the removal of doubts. The action involved was balanced in that it was the minimum necessary to maintain what is an irreducible component of our national security calculus. Subsequently, government has already announced that India will now observe a voluntary moratorium and refrain from conducting underground nuclear test explosions. We have also indicated willingness to move towards a de-jure formalisation of this declaration. The House is no doubt aware of the different reactions that have emanated from the people of India and from different parts of the world. The overwhelming support of our citizens is our source of strength. It tells us not only that this decision was right but also that our country wants a focused leadership, which attends to their security needs. This, I pledge to do as a sacred duty. We have also been greatly heartened by the outpouring of support from Indians abroad. They have, with one voice, spoken in favour of our action. To the people of India, and to Indians abroad, I convey my profound gratitude. We look to the people of India and Indians abroad for support in the difficult period ahead. In this, the fiftieth year of our independence, we stand at a defining moment in our history. The rationale for the government's decision is based on the same policy tenets that have guided us for five decades. These policies have been sustained successfully because of an underlying national consensus. It is vital to maintain the consensus as we approach the next millennium. In my statement today and in the paper placed before the House, I have elaborated on the rationale behind the government's decision and outlined our approach for the future. The present decision and future actions will continue to reflect a commitment to sensibilities and obligations of an ancient civilisation, a sense of responsibility and restraint, but a restraint born of the assurance of action, not of doubts or apprehension. Avoiding triumphalism, let us work together towards our shared objective in ensuring that as we move towards a new millennium, India will take its rightful place in the international community. On 11 May, a statement was issued by Government announcing that India had successfully carried out three underground nuclear tests at the Pokhran range. Two days later, after carrying out two more underground sub-kiloton tests, the Government announced the completion of the planned series of tests. The three underground nuclear tests carried out at 1545 hours on 11 May were with three different devices — a fission device, a low-yield sub-kiloton device and a thermonuclear device. The two tests carried out at 1221 hours on 13 May were also low-yield devices in the sub-kiloton range. The results from these tests have been in accordance with the expectations of our scientists. In 1947, when India emerged as a free country to take its rightful place in the comity of nations, the nuclear age had already dawned. Our leaders then took the crucial decision to opt for self-reliance, and freedom of thought and action. We rejected the Cold War paradigm whose shadows were already appearing on the horizon and instead of aligning ourselves with either bloc, chose the more difficult path of non-alignment. This has required the building up of national strength through our own resources, our skills and creativity and the dedication of the people. Among the earliest initiatives taken by our first Prime Minister Pt. Jawaharlal Nehru, was the development of science and inculcation of the scientific spirit. It is this initiative that laid the foundation for the achievement of 11 and 13 May, made possible by exemplary co-operation among the scientists from Department of Atomic Energy and Defence Research & Development Organisation. Disarmament was then and continues to be a major plank in our foreign policy now. It was, in essence, and remains still, the natural course for a country that had waged a unique struggle for independence on the basis of 'ahimsa' and 'satyagraha'. Development of nuclear technology transformed the nature of global security. Our leaders reasoned that nuclear weapons were not weapons of war, these were weapons of mass destruction. A nuclear-weapon-free-world would, therefore, enhance not only India's security but also the security of all nations. This is the principle plant of our nuclear policy. In the absence of universal and non-discriminatory disarmament, we cannot accept a regime that creates an arbitrary division between nuclear haves and have-nots. India believes that it is the sovereign right of every nation to make a judgement regarding its supreme national interests and exercise its sovereign choice. We subscribe to the principle of equal and legitimate security interests of nations and consider it a sovereign right. At the same time, our leaders recognised early that nuclear technology offers tremendous potential for economic development, especially for developing countries who are endeavouring to leap across the technology gaps created by long years of colonial exploitation. This thinking was reflected in the enactment of the Atomic Energy Act of 1948, within a year of our independence. All the numerous initiatives taken by us since, in the field of nuclear disarmament have been in harmony and in continuation of those early enunciations. In the 50's, nuclear weapons testing took place above ground and the characteristic mushroom cloud became the visible symbol of the nuclear age. India then took the lead in calling for an end to all nuclear weapon testing as the first step for ending the nuclear arms race. Addressing the Lok Sabha on 2 April, 1954, shortly after a major hydrogen bomb test had been conducted, Pt. Jawaharlal Nehru stated that "nuclear, chemical and biological energy and power should not be used to forge weapons of mass destruction". He called for negotiations for prohibition and elimination of nuclear weapons and in the interim, a standstill agreement to halt nuclear testing. The world had by then witnessed less than 65 tests. Our call was not heeded. The currency crisis in East and
South-East Asia (Continued from yesterday) Thailand spent about $20 billion to defend the Baht and reduced its external reserves from about $30 billion to about $9 billion — considered as a dangerous level. Malaysian authorities spent about $4 billion and the Philippines $2 billion to defend the Ringgit and the Peso. In addition, the monetary authorities raised interest rates to very high levels and some began to restrict currency capital movements, but they proved to be ineffective. Thailand was the first country in the region to allow its currency to float or depreciate on July 2, 1997. It had a contagion effect on other currencies of the region because the Baht depreciation improved Thailand's export competitiveness and made it imperative for others to follow suit. The currency traders realized that these countries had to devalue to remain competitive, and targeted them for speculation. The Philippines was forced to devalue on July 11 and Malaysia, Indonesia and South Korea thereafter. Even Singapore and Taiwan with their current account surpluses and large external reserves had to yield to market pressure and depreciate their currencies. Between November 1996 and November 1997 currency depreciation was 53 percent in the Thai Baht, 44 per cent in the Indonesian Rupiah, 32 percent in the Malaysian Ringgit, 30 percent in the Philippine Peso, 22 percent in the South Korean Won. 14 percent in the Taiwan New Dollar and 13 percent in the Singapore Dollar. Only the Hong Kong Dollar remained unchanged; the authorities in Hong Kong defended the dollar by raising interest rates to 300 percent causing a fall of 15 percent in the stock market. There is much controversy over the question whether the currency depreciation in East and South-East Asian currencies was a market phenomenon or was deliberately engineered by currency speculators. Dealers in London and Singapore have said that US hedge funds were responsible for the attacks on the Asian currencies, and several of them had named George Soros — the financier who reaped a $1 billion windfall when he bet against the pound sterling in 1992 — as one of those leading the attack. It is a fact that George Soros took a $4 billion forward position on the Baht in mid-May and forced the Baht's value down. Malaysian Prime Minister Mahathir Mohamed too accused ''rogue speculators'' of orchestrating a ''well planned effort to undermine the economies of all the ASEAN countries by destabilizing their currencies'' and spoke of a ''certain powerful American financier'' — obviously referring to George Soros — as being behind the attacks. The Newsweek of February 16, 1998 admitted that the hedge funds or ''vulture funds'' as described by the Filipinos, had brought about the currency crisis: ''Having forced Asia's markets to a crisis, they are now mopping up — looking for quick ''flips'' by buying properties and selling them on the way up''. While it is true that foreign speculators particularly, US hedge funds played a leading role in forcing currency depreciation, it must also be admitted that they were able to do so as mentioned earlier, because of certain weaknesses in the Asian countries which added an element of uncertainty regarding their future. The Economist, so far back as 9th March 1996, had pointed out ''the nagging worry about large and rising current account deficits'' and other weaknesses: ''Yet there are grounds for concern... Much medium-term bank lending is financed by short-term borrowing from abroad, and local capital markets are increasingly popular with international portfolio investors. Moreover, much of the region's investment has poured not into factories making goods for export, but into infrastructure. Better roads, ports, power supplies will eventually make the economies more efficient and translate into export growth but it may take years. This is making some international fund managers jittery — especially about Malaysia. Among the grand schemes planned in Malaysia are a huge hydro-electric power project, new air and sea ports and a new administrative capital. Fund managers have fretted that some of the projects will be unviable, and that the rush to build them will both fuel inflation and widen the current account deficit further. To make foreign investors more nervous still the Malaysian government's usual response to its economic critics is to scold them (Indonesia and Thailand also pooh-pooh their gainsayers, but at least treat them seriously). Last year's budget promised a review of the big infrastructure projects to avoid a ''bunching'' of imports. But in January, the Prime Minister, Mahathir Mohamed, insisted that there was no need for delay, and that deficit could be tackled simply by an export push and curbing non-essential imports''. The Economist also mentioned that one Asian central banker had stated that: ''the ghost of Mexico is beginning to reappear on the horizon''. Collapse of stock markets The specueative attacks on Asian currencies which have resulted in sharp depreciation of currency, slide in the stock market, fall in property values and rise in interest rates have had disastrous effects on their economies. Banks burdened with bad debts have either closed or merged with other banks. Thailand, for instance, has closed 56 troubled finance compaies; Indonesia has closed 16 banks and merged three out of seven State banks while South Korea has closed 10 insolvent investment banks and allowed other banks to be merged or be acquired by foreign banks. Restriction of credit and higher interest rates have discouraged domestic investment while inability to repay their loans or borrow afresh have caused bankruptcy of many firms. The fall in currency values have raised the debt service burden of many businesses and banks which have large offshore borrowings. The favourable effect of devaluation on exports is likely to be neutralized to a great extent by the rise in cost of imported inputs for the export-oriented manufacturing industries such as electronics and automobiles where the import content can be as high as 70 percent. Further, Japan mired in a financial crisis and recession is unlikely to provide an expanding market for Asia's exports. Deflation, slower growth and continuing currency depreciation are discouraging foreign direct investment. In Thailand, Toyota Motors, which has 30 percent of the Thai car markets has announced that it was suspending local production. In South Korea, 8 of the 30 chaebols have crashed in 1977, the latest being Hanbo Steel, Kia Motors and Halla Group, and many more are expected to collapse under IMF's austerity plans. Over 3,000 smaller companies went bust in January 1998 alone. In Indonesia, about 200 of the 228 listed companies on the stock market are reported to be technically bankrupt including most of the property sector.
Although the Asian currency crisis has not directly affected China, it has serious implications for China's future. Higher interest rates in Asian countries, particularly Hong Kong, will make it difficult for China to raise capital for its planned modernization and expansion. Besides slower growth in Hong Kong and other Asian countries would tend to reduce China's exports to them: it may also reduce their capacity to invest in China. The depreciation of Asian currencies may also reduce China's competitiveness in some exports. Hong Kong has managed to fight currency speculators to maintain the peg to the US dollar but it was at the expense of a collapse in the stock market. The consequent high interest rates may lower its economic growth, reduce corporate earnings and cause a further decline in stock prices and increase the ratio of bad loans of banks. Deflation in Hong Kong is bound to effect China. IMF's prescriptions The US authorities believe with the IMF that the Asian crisis is the result of unsound economic and financial policies and that the Asian countries can recover only by implementing the IMF austerity package. President Clinton in fact telephoned President Suharto on 15 January 1998 to tell him that 'the only hope they have of stabilizing the situation is to get on with the IMF programme', and thereafter sent Deputy Treasury Secretary to Jakarta. The Newsweek of December 8 1997 reported that the 'US Treasury department officials called in IMF Chief Michell Camdessus last week to insist that he be firm in demanding major financial reforms in Seoul'. (This also illustrates how US influences the IMF). Bail-outs Second is the criticism of economists like Professor Jeffrey Sacchs of Harvard that the IMF's policies instead of curing the patient may actually kill him. Higher interest rates to encourage people to hold on to local currency and discourage speculation raise the cost of credit to trade and investment causing bankruptcies on the one hand and higher consumer prices on the other. This is compounded by higher taxes and cuts in State subsidies. The closing of insolvent banks all at once in Indonesia at IMF's request, instead of restoring confidence worsened the panic. Sachs warned in November 1997: 'If the currency crisis is well managed Asia will be able to resume its rapid economic growth. If it is managed with an unthinking (IMF) orthodoxy, the costs could be very high, for Asia and the rest of the world'. The deflationary policies prescribed by the IMF have slowed economic growth in all the Asian countries: forecasts for 1998 are 3 percent for South Korea, 2 percent for Malaysia, and negative growth for Indonesia and Thailand. Unemployment is estimated to reach 3.7 million in Thailand, 9 million in Indonesia and 2.0 million in South Korea by the end of 1998 and this is expected to result in widespread social discontent and political instability. Already workers have demonstrated against IMF reforms and consequent retrenchment and higher prices in Indonesia, Thailand and South Korea and the Asian chapter of the International Confederation of free Trade Union has attacked Asian governments and foreign lenders for making the workers bear the brunt of the Asian crisis through unemployment. Third is the difference of opinion emerging between the IMF and the World Bank on IMF's prescriptions. The chief economist of the World Bank Joseph Stiglitz, who was former economic adviser to President Clinton, recognise the risks of freeing fragile financial markets in developing countries and believes that mild controls could reduce incentives for risky lending and the opening the economy to foreign banks may cause excessive competition, reduce bank profits and cause instability. He agrees with Jeffrey Sachs that the IMF is pushing the Asian countries into recession not recovery and emphasizes that the IMF should concentrate on 'things that caused the crisis, not on things that make it more difficult to deal with'. Fourth, it is believed that IMF prescriptions tend to favour foreign (lending) banks and penalise domestic (borrowing) banks; the former are bailed out while the latter are closed or merged. When the IMF ensures that the foreign banks are repaid their loans, there is no deterrent to further lending by them, and they continue to lend as before, tempting developing countries to borrow and get into difficulties again. Many oppose to IMF or governments undertaking to repay their loan as they took into account all risks including default when they lend the money and they should therefore suffer the consequences of their own decisions. Fifth, while the IMF advocates full liberalization of the capital account, Secretary-General of UNCTAD has stated that if developing countries were to open their economies and remove controls under the pressure of IMF/WTO, that would reduce their ability to regulate the movement of inward and outward capital and this could increase financial vitality and disrupt the economy. Further, China was unscathed by the Asian financial turmoil because of the strict control of the capital account. The South Asian countries too escaped the full force of the crisis partly because of their capital account controls. Besides, Chile, considered as an IMF model economy, owes its stability to restrictions on short-term capital flows. Sixth, the crucial question is how future crisis should be tackled. In both the Mexican and Asian crises, rescue operations were conducted by the IMF with the support of neighbouring and friendly countries. Such support for future crisis may not be forthcoming as the majority of Americans polled by Reuters in January 1998 opposed giving financial help to Asia's stricken economies. In Congress, lawmakers have launched a legislative assault on the IMF, proposing measures to limit US's role in future bail-outs. Last November, Congress rejected Clinton's request to make an extra $3.5 billion available to the IMF. The IMF by itself will lack resources without US help to overcome financial crises such as the current one. Seventh, are the IMF's policies the answer to the Asia's crisis? According to a study by the Washington based Heritage Foundation, more than half of the 89 developing countries which received IMF's assistance since 1965 are not better off than they were before and 32 or more than one-third are actually worse off! Finally, IMF's prescriptions of high interest rates, tight government spending and credit and increased taxes, appear to have failed to shore up confidence in the Asian economies and to arrest the depreciation of their currencies. Thus, between 3 November 1997 and 9 February 1998, currencies have depreciated further as follows:- Indonesian Rupiah by 166 per cent, Korean Won by 61 per cent, Malaysian Rigngit and Thai Bath by 17 per cent, the Philippine Peso by 15 per cent, Singapore dollar by 6 per cent and Taiwan new dollar by 5 per cent (see Table I). The Economist of January 10th 1998 stated: 'While the remedies currently on offer are clearly not working the mixture of tight government budgets, high interest rates and liberalizing economic reforms, supplemented by loans arranged by the IMF, has failed to stabilize anything Ñ it is not obvious what would work better. Perhaps the most worrisome aspect of Asia's crisis is that no one seems to see a way out'. Thailand which met all IMF's targets now seeks to re-negotiate the terms of the agreement with the IMF as they are pushing down growth and depriving the economy of momentum to stimulate itself. South Korea too wants fiscal requirements imposed by the IMF, eased as it has no leeway to revive the economy and create employment. President Suharto in a speech, on 1 March 1998, on his government's performance over the past five years, said despite the reforms implemented or pledged by Indonesia under the IMF deal, 'there are no signs of improvement yet'. He further stated that the IMF programme was unconstitutional. President Suharto wants a more broad based economic reform than the rescue package agreed with the IMF and has commissioned an American economist Steve Hanke to prepare a IMF plus programme including a currency board system to stabilize the exchange rate of the Rupiah at a reasonable level. The Indonesian Central Bank Governor who opposed this scheme was removed, but opposition of the IMF to the proposal remains. The IMF fears that the currency board apart from holding down monetary creation and thereby limiting economic growth, may draw down Indonesia's limited foreign currency reserves in order to defend a fixed exchange rate against the dollar and thereby encourage more capital flight and foreign loan withdrawal while higher interest rates would lead to liquidity crunch causing corporate bankruptcies; it has threatened to stop the bail-out plan if the currency board was implemented. Many believe that the currency board is a device to enable Suharto family and friends whose firms are saddled with large dollar debts, to exchange their billions of rupiahs into dollars at a favourable exchange rate which is expected to be double the currency's market value now. Table II Continued tomorrow |
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