Global Trends by Martin Khor
Monday 20 October 2008
Double standards in the West’s actions
The global crisis has entered the phase of recession in the real economy. Recent actions of Western countries contrast sharply with the advice they gave Asian countries a decade ago, revealing clear double standards.
In the past fortnight
the leaders of the
The measures have
to some extent stemmed the haremorrhage in the system, giving some breathing
space to the banks and other institutions in many countries. In
And many East European
are now extending a blanket guarantee of savings deposits in commercial
banks. It started with
Once one government gives the guarantee to avoid a possible run of the banks, other governments feel they also have to do so to prevent funds flowing out to the countries providing the guarantee. Such is the fragile state of confidence in the banking system that jittery savers are searching for safety for their funds.
Though there is some respite in the finance sector, the global stock markets have not yet recovered their nerve. Last week saw a continuing see-saw between optimism and pessimism, with the swings taking in huge gains and equally large losses from day to day. Even the famed investor Warren Buffet admitted he does not have the “faintest idea whether stocks will be higher or lower a month or a year from now.”
Last week saw astonishing
Western government actions. The
But at least the situation on the financial front is calming down, since markets know the governments now have the will to bail out the banks. But this has been offset by worries about the “real economy”.
The problems starting
in finance have now spread to the sectors providing goods and services.
Unemployment is up, industrial production down. And last week a consumer
sentiment index in the
The past weeks have also remarkably revealed double standards in the actions of Western leaders and the IMF, on the actions they now take which is the opposite of what they prescribed for the Asian countries during their crisis a decade ago.
The affected Asian countries were instructed to raise their interest rates sharply. This led to consumer and companies being unable to service their debts, and to recession.
In contrast, the
were ordered by the IMF not to extend aid to their ailing local banks
and companies, as this would waste public funds and cause “moral hazard.”
But last week the
European leaders announced government measures worth almost US$3,000
billion (comprising capital injection, purchase of banks’ toxic assets
and loans, deposit guarantees, and guarantees for new unsecured bank
loans) to save their financial institutions. The
No significant bank will be allowed to fail, said the Western leaders. What is paramount is to save the economy from meltdown. But when Asian countries wanted to take similar measures, they were told these actions would worsen their crisis.
The then IMF chief
Michel Camdessus told Asian leaders not to give in to the temptation
of going back from financial liberalization or to rescue their failing
companies. But last week, the present IMF head warned of a global
financial meltdown and urged the
Some Asean leaders
ten years ago, led by
Now, the captains
of big banks have blamed speculators for the collapsing values of their
shares, and the
When bank loans
Fortunately in the
When the then premier Tun Mahathir Mohamed went to the IMF annual meeting in 1998 and attacked financial speculators and the unregulated financial system for destroying the real economy, he was dismissed by the Masters of the Finance Universe and their political leaders as being ignorant about how modern international finance works.
In retrospect, if the leaders and the IMF had taken him seriously and learnt the proper lessons from the Asian crisis, the Western countries might not have had to go through this present massive crisis, nor would the world be now dragged into a deep and long recession.