by Kanes
The IMF and the developed countries, particularly the USA, have attempted to show the world that the currency crisis in Asia was caused by unsound macro-economic policies, State intervention and regulation, croynism and the lack of a free market. It is strange that they had to wait for a major crisis as the current one to make these charges. They had not made them when the Asian countries were booming: on the contrary, they had praised their performance and endorsed their policies. The Asian crisis was actually caused by the excessive foreign short-term borrowings, reckless domestic lendings by banks and unhealthy assets bubble in Asian countries which led to a loss of confidence in them in international financial markets. Such practices would have caused an implosion in any country whether it had or not sound macro-economic policies, free market economy and transparent policies.

Joseph Stigitz, chief economist of the World Bank has pointed out that some of the worst financial crisis in the last decade occurred in countries with the most transparent policies in the world - Finland, Norway and Sweden. He has further stated that the crisis was not brought about by cronyism but poor governance (in other words lack regulation, not excessive regulation) and other structural problems which led to a swing in market mood. After a decade of bullishness in the region. "International exuberance gave to irrational pessimism (which) proved self-fulfilling as capital outflowed and accompanying depreciating currencies and falling asset prices exacerbated strains on private sector balance sheets. Financial problems led to restricted credit undermining the real economy and slowing growth."

Cronyism
If these countries, as the critics point out, are having cronyism, State intervention and regulation and unsound macro-economic fundamentals, how is it that they achieved the highest sustained economic growth rates in the world for the last 30 years? If they had them, then clearly they were not obstacles to rapid growth and therefore they could not have caused the current crisis. Further, it is the IMF itself which had praised their economic performance and certified their sound economic fundamentals all these years. Is there new evidence that the IMF was misled and failed to see their so-called unwholesome policies and practices?

It is true many indigenous businesses - mainly in their infancy - had been assisted financially and otherwise by the State and State-owned financial institutions. But this is a normal practice in almost every country. Indigenous enterprises were generally handicapped to secure a share of their country's business because of colonial and foreign enterprises which dominated the economies of these countries in the past. They had to be assisted by the state to stand on their own feet. In Malaysia, there was a programme called the New Economic Policy or NEP which from 1971 to 1990 distributed wealth in the form of education, jobs shares in government-owned companies and contracts to scores of 'bhumiputras' or indigenous Malaysians. This was openly done and in fact very recently the Malaysian premier Mahathir Mohamed had lists read out publicly of the names of hundreds of citizens and companies that benefited from government contracts and other awards. This cannot be described as 'cronyism'. If at all, one could call it a form of pork barrel politics practised in the West where favours are given to those who provide financial support to the political party which forms the government. None have criticized US authorities for awarding defence contracts and research grants to Boeing Company.

Similarly, South Korean authorities picked out those firms with the best potential for promoting industries and expanding exports - sure winners - and provided them with state subsidies, concessional credit from state-owned banks, foreign technology transfers and protection from imports in their infancy. It is through such State assistance that small Korean businesses became massive chaebols which made Korea the eleventh largest trading nation of the world producing sophisticated products to compete with the developed countries of the world. Korea was emulating Japan which developed under a framework of state-guided capitalism which was different from a free market economy and which prevails up to this day. This was not cronyism. The only country where cronyism was openly practised was Indonesia where former President Suharto's children and friends were provided business opportunities not given to others to make them billionaires, but the IMF and US did not find fault this cronyism when the Indonesian economy was booming and Suharto was all-powerful.

An illustration of cronyism, according to the critics, is that all these countries - Indonesia, Malaysia, Thailand and South Korea - bailed out major companies which were troubled with State funds or State directed bank credit; but this again was nothing unusual. No one criticized the US authorities for bailing out Chrysler Corporation when it was in trouble and reviving it as an efficient enterprise.

The current crisis and the failure of IMF remedies to arrest it have led to some disillusionment with free markets in some intellectual circles. They argue that although the free market is a wealth creating machine it is incapable of building a humane and just society, and that while authoritarianism should be opposed, we should be concerned with the dictatorship of the market which is often invisible. Some critics have even gone to the extent of seeing positive features in the Chinese version of the social market economy with a gradualist approach to market opening. Most of these countries have several State enterprises controlling some strategic sectors of the economy, addressing market failures and providing a countervailing power to private enterprise. Most of them are earning profits and are a major source of revenue to the government and have contributed much to pioneer rapid economic development in these countries. Accordingly, many Asians fail to understand why they are being privatized. For example, Singapore Airlines, the most efficient airline in the world is State-owned; so is Thai Airways which is also one of the most efficient. They also point out the great contribution State intervention can make to economic development. For instance, Hong Kong's government following a laissez faire policy refused to invest in technology and research, while Governments of Singapore, Taiwan and South Korea invested heavily on research and development to move from simple manufacturing into the computer age.

National Sovereignty
Many Asians complain that the IMF infringes on national sovereignty by conditioning its assistance on changes in domestic policy. Funds are normally withheld if the prescribed reforms or changes are not made, even if such withholding causes things to go from bad to worse. When the IMF, for instance demanded the abolition of monopolies such as Bulog, the rice distribution agency, it was regarded by the Indonesians as blatant interference in the way the State feeds the poor. When the IMF demanded reform of the way the Korean chaebols conducted their business, Koreans considered it as unwarranted meddling with the traditional way with Korean business. The Koreans further charge that the IMF interfered in their policies by meeting with trade unions and presidential candidates. Some other Asians have pointed out that the IMF's policy of dictating what parts of the budge  should be cut affects the country's political philosophy. Others believe that the IMF's interference with national sovereignty is no accident but part of a Western conspiracy to control Asian economies and prevent them from emerging as too powerful competitors to industrial nations.

The IMF's argument that it behaves like a commercial bank towards its customers to ensure that its loans are repaid promptly has failed to convince some of its critics. Stanley Fischer, a deputy managing director in the IMF in response to the charge of interference with national sovereignty stated as follows:

"We are a governmental organization representing 182 countries. Under the articles of agreement we make loans to a government of a country under adequate safeguards - essentially two; one that it fixes the problem, and two, that the money gets repaid. We say that the money is available provided measures are taken to deal with the problem. People sometimes say "Why don't you rely on the countries to fix the problem". But it's the countries who created the problem in the first place".

"No government exercises full sovereignty in the economic area. They agreed to join the IMF and it imposes obligations on them".

National Resentment
The IMF prescription to deregulate the economy and open its doors to foreign capital to purchase national assets had fuelled national resentment against foreign investors. This was quite strong in South Korea until it was mitigated by President Kim Dae Jung but it is widespread in Thailand where civic groups are preparing to fight privatization and foreign ownership of state-owned assets. Many Thais believe that the IMF backed by the USA has planned to make their country and others bankrupt so that foreign companies can buy their assets cheaply. The timing of the IMF pressure to open the economy when the country was at its weakest have confirmed their belief that IMF is a device for Western multinationals to buy their assets and turn Thailand into a "slave society, modern style".

The IMF does encourage domestic firms to strengthen themselves through mergers, joint ventures and partial or outright sales. It also advises governments to remove rules and regulation which prevent the foreign ownership of local assets. Indigenous businessmen on the other hand argue that transfer of domestic assets to foreign ownership would not be necessary if the state or banks provide them with the funds needed to revive their business. To this, the IMF replies that the government or the banks (who are saddled with bad loans) do not have the necessary funds and that the debt burden throughout Asia is too big for any solution by government or banks and therefore there is no alternative but to merge or allow acquisitions or partnerships with foreign firms.

Already, some national assets have been purchased by foreign business. In Thailand, the Dutch bank ABN-AMRO and the Development Bank of Singapore have acquired stakes in two Thai banks and George Soros has joined a $650 million investment in Nakornthai Strip Mill. In South Korea, BASF (Germany) bought a division of Daesang (Korea) for $ 660 million and Coca Cola (USA) has acquired the bottling operations of Doosan Group (Korea) for $ 441 million. Saudi Arabians have invested in Daewoo and Hyundai Motors (Korea) and bought stakes in ASEAN blue chips and General Electric (USA) plans to invest $ 40 billion in Asia. Microchip (USA) may invest $ 1 billion in S amsung Electronics (Korea) and BASF (Germany) will invest $ 6.5 billion in Asia. These acquisitions of national assets by foreign firms has prompted Andrew Ballingad of Schroeder Asia in Hong Kong to say "Large chunks of corporate Asia is about to be transferred to competent financial and industrial management, which they never had before. Asia has a great future as a subsidiary of US Inc."

While Thailand and South Korea on IMF's pressure have relaxed restricting foreign ownership of companies including banks, Malaysia has refused to relax its limit on foreign ownership of banks to 30 per cent and instead is encouraging weak banks to merge with stronger domestic banks.

In South Korea, the IMF's austerity package and reforms created a backlash of nationalism in the form of a "Buy Korean products" campaign. Consumers have refused to buy foreign products such as Marlboro Cigarettes and other consumer goods which has resulted in a fall in Korea's import of consumer goods. Foreign goods have even been burnt in some places. Koreans feel that the IMF package and purchase of Korean assets are a form of neo-colonialism. Koreans have always been wary of foreigners, particularly after the Japanese conquest in 1910. There is even a law which still limits foreign ownership of land strictly for business purposes, and consequently only 0.039 per cent of national land belongs to foreigners. Although the new President wants to open Korea to foreign capital, the majority of the bureaucracy and ordinary people are not in favour.

The backlash against foreign business was highlighted by the Malaysian premier Mahathir Mohamed in a Tokyo symposium on the future of Asia on June 4, 1998. He warned of a violent backlash by Asians, involving a "guerrilla war", if foreigners used the region's financial crisis to take over their economies. He said that the Asian economies would be run by huge foreign corporations, practically all owned and managed by non-Asians, while governments would submit because they would know they were up against forces they cannot defeat. "But the people will show their resentment against those outsiders who will lord it over them once again. Sooner, rather than later they will think of regaining control over their economies. They will regard this as a new war of liberation", he said. Mahathir's views are not shared by some of the other leaders of Asia. Elder statesman Lee Kuan Yew, former premier of Singapore for instance, reacted to Mahathir's statement in the following words. "A leader who sends out such signals must expect foreign investor to be stouthearted enough to engage in counter insurgency actions before they invest in local companies".