A letter to Robert Rubin.
Dear Secretary Rubin,
One of the more disturbing traits of the architects of economic globalization is their penchant for secrecy and apparent disdain for democratic processes. This modus operandi is problematic not only on procedural grounds alone, but also because it tends to foster policies that serve narrow corporate interests over broader taxpayer, consumer, worker, environmental and other citizen interests.
There is no doubt that the globalization-induced Asian financial crisis and the South Korean meltdown in particular were and are serious problems. However, as serious problems, they merit open debate and explanation of policy choices by government officials--not stealth meetings, secret decisions, concealed information, intentionally obscure comments from you and other officials and sudden reversals of policy. The priorities of democracy must be elevated over those of "the market."
As you may recall, in the first weeks of the South Korean crisis, you and members of the Clinton Administration repeatedly asserted that U.S. funds would be involved in the South Korea/Citicorp bailout only as "a second line of defense." On December 3, South Korea and the International Monetary Fund agreed to a $55 billion loan package in which South Korea acceded to substantial economic conditions. The U.S. contribution was $5 billion, drawn from the Exchange Stabilization Fund, a pool of money on which the President can draw without approval by Congress, and specifically characterized as a "second line of defense" to be used only if the multilateral development bank money was exhausted. You continued to assure the American people that U.S. taxpayer money would not be put at risk.
On December 24, in what may become known as the Great Christmas Eve Reversal, the Clinton Administration agreed to lend South Korea $1.7 billion in January as part of a $10 billion emergency loan package. In exchange for the loan, you extracted a series of additional South Korean economic conditions that are of questionable benefit to the South Korean economy, though of certain advantage to big U.S. banks and other corporations, which will now be able to acquire majority stakes in South Korean firms at fire-sale prices.
The loan packages impose an array of austerity measures on the South Korean economy, which many economists have argued compellingly are exactly the opposite of what is justified by the underlying fundamentals of that economy. The recessionary policies pushed by the I.M.F. and the Treasury Department will throw tens of thousands of South Korean workers out of their jobs and depress the wages of those who hold on to their jobs, even though there appeared to be effective alternative policies (such as increased transparency and financial sector restructuring, with no macroeconomic dictates) available. Devaluation and other contractionary policies will also further the problem of cheap foreign labor undermining the jobs and negotiating leverage of U.S. workers.
Meanwhile, the international banks that made loans to South Korean enterprises and are complicit in whatever imprudent loans were made will apparently be bailed out by the I.M.F and Christmas Eve Reversal packages--suffering no more than deferred payments. Furthering the inequity, the I.M.F. and the reversal packages require South Korea to open its economy to foreign mergers and acquisitions--meaning that Citicorp, J.P. Morgan, Bankers Trust, Bank-America, the Bank of New York, Chase Manhattan and others are not only bailed out but then given the opportunity to buy up lucrative sectors of the South Korean economy--a double windfall.
How does the man who preached about the risk of "moral hazard" justify such a generous package for lenders and such a harsh package for the borrower? Your handling of the South Korean/Citicorp bailout is a textbook study of the dark side of globalization. It is time for you to remember that you are employed by the people of the United States, not by the banks and financial houses on Wall Street.
The first step in demonstrating your respect for the American people is to disclose the list of the big banks that are the ultimate recipients of the bailout. A second step would be to cease to make large-scale use of the Exchange Stabilization Fund without prior Congressional approval, as proposed in legislation introduced by Senator Lauch Faircloth. Third, there should be no Administration request this spring for more funding for the I.M.F., which has demonstrated that it is too secretive and too enchanted with pull-down austerity measures to merit support.
Finally, you may wish to ponder the inadequacies of the Administration's economic intelligence. A broader array of empirical indicators are a reflection of a more anticipatory and therefore democratic process of decision-making.
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|Title Annotation:||adapted from an original December 31, 1997, letter to the Secretary of Treasury, criticizing the terms of the South Korean bailout procedures|
|Author:||Nader, Ralph; Weissman, Robert|
|Article Type:||Brief Article|
|Date:||Jan 26, 1998|
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