Superfinancial System in State of Chaos

Clyde Wilson

1998

The financial and currency meltdown among the Asia-Pacific countries has created a chaotic condition that could engulf the financial and trade markets throughout the world. Even with the intercedence of the International Monetary Fund as a lender of last resort, the attempt to restore stability and confidence in the financial and monetary system may act as only a temporary stopgap. The magnitude of this crisis will no doubt have a lingering and damaging impact on the economies of Asia and the rest of the world.

While the officials of the International Monetary Fund have been accused of failing to sound a warning alarm when it became evident that the Pacific Rim countries were overextending their limits of debts and their currencies were being devalued at an atypical rate, there was hardly any concern that these countries were in serious financial trouble as it was assumed that they would continue their phenomenal economic growth and development. South Korea, Taiwan, Singapore and China had shown an annual growth rate of 16 to 20 percent since the mid-1970s, with Malaysia, Thailand and Indonesia not far behind.

In an article that appeared in The Wall Street Journal by Brett Fromson, he wrote that many of the ``experts'' in the world of high finance advised that no one could ignore the Pacific Rim countries as being an investors' paradise. And just a month before the financial distress signals became evident, the Money Magazine carried headlines about the dazzling earnings and spectacular profits of these world's fastest growing economies. The euphoria became contagious among the financial communities, multinationals, brokerage houses, governments and even praise by the International Monetary Fund. But as Fromson concluded in his article, it was mass self-delusion among those experts who seldom spot the important market turns.

Before the failure of the financial and monetary structure of the Southeast and Southwest Asia countries, the main concern of the industrial nations was centered on what has been referred to as ``hot money.'' In June of 1995, the Group of Seven industrial nations held a Summit for the specific purpose of dealing with the problem of ``hot money,'' a multitrillion pool of capital that races around the world dealing and searching for those stocks, bonds and currency markets that bring the highest returns each day. There is the concern and fear that these practices could cause serious damage and shut down the entire system of handling all financial transactions and exchanges worldwide.

So far there has not been any effective plan formulated to stop or curtail the problem caused by ``hot money.'' As John M. Barry brought out in his article that appeared in The Washington Post Weekly Edition of April 24-30, 1995: ``In this age of electronic money, the volitility of currencies worldwide, and the rapid mobility and magnitude of money-- there was $418 trillion in currency transactions and exchanges by the United States and international banks in 1988--makes drafting of any effective controls to meet this problem unlikely (or improbable). This situation along with the present financial and debt crisis in Asia has all the elements to bring about serious long-term repercussions to the economies of the world.''

At the same Summit on the issue of ``hot money,'' the Clinton administration offered a rather modest package aimed at discouraging developing countries from employing risky economic and financial strategies, such as the free fall of Mexico's currency in which the United States and the American people got stuck again with billions of dollars to bail out Mexico's economy. But who would have thought among the government and financial experts that the Pacific Rim countries' financial structure would be in a state of collaps when they have had unprecedented economic growth and development since World War II.

Asia's Growing Economic Development & The Pitfalls Of Financial System

How was it possible for the economies of these undeveloped and developing countries to grow at such a fast and high rate? The economic development of the Pacific Rim countries was hastened from by-passing many of the trials and errors that other nations had to go through during the industrial revolution, and by acquiring and applying the most advanced and efficient methods in the production of goods and products. From their economic progress they were in a position to receive financial credit and to provide financial assistance and make reciprocal trade agreements that would be beneficial to all of the countries in the region.

But as their productivity and gross product increased, and as the momentum of their economic growth and development surpassed all expectations, it was assumed that the Pacific Rim ``tigers'' would catch up or even surpass the industrial nations of the West. But given the inherent characteristics of a monetary system, these most promising developing countries fell into the same pitfalls that are inevitable when operating within the framework of a financial and price system.

Of all the countries in Southeast and Southwest Asia, Japan has been the leader in the economic growth and development in the region. While Japan's Gross National Product has surpassed most of the industrial nations in the world with the exception of the United States, for the past seven or eight years its economy has been mired down from over-extended loans, debts and poor investments. Japan's Minister of Finance estimates that its problem loans amount to $223 billion, but U.S. bankers believe the figure is much higher because of the slipshod disclosure methods used by Japan's financial institutions. It is no wonder that those banks and businesses in the United States that have made loans and have assets in Japan are apprehensive about their investments as a number of Japan's largest banks, credit and businesses are in trouble. And adding to Japan's financial and economic crisis, Japan's banks made $299 billion in loans in 1996 to ten of the Asian countries in the region (including Hong Kong), that are now having the same financial and economic problems as Japan. (Asian countries account for 44 percent of Japan's exports.)

In its gloomiest assessment of Japan's business outlook in two decades, the government recently reported that the economy is stagnating, and it is unclear when growth will resume. The Bank of Japan's recent quarterly survey reported that the biggest companies in Japan cited sluggish economic growth at home and worries about the impact of Asia's financial crisis for their deepest pessimism. Adding to what has become a consenus among observers of Japan's economic condition, Norio Ohga, chairman of Sony Corporation speaking to reporters in Tokyo shortly after the Japanese central bank's release of its latest survey on the nation's economy said: ``The Japanese economy is on the verge of collapsing. If the economic situation continues to decline...it will no doubt have a damaging effect on the world economy.'' He warned that the robust American economy could take a hit if Japan's economy continues to slump. ``Even the U.S. economy will not be able to maintain its healthy state,'' he said.

Corporate confidence in Japan's economy has hit an all-time low. And Japanese companies are blaming the government for not implementing effective measures to stimulate business. But up to this point, the Japanese government has been reluctant in putting into place any measures that they consider might have a harmful effect on the economy of the nation.

An article by David P. Hamilton that appeared in The Wall Street Journal (3/23/98) goes into considerable detail concerning Japan's economic position and policies. The insistence of U.S. pressure on Japan to stimulate its economy by cutting taxes, raising spending by at least 10 trillion yen ($76.52 billion), open up its import markets and work with the International Monetary Fund to restore its credit and debt structure has met with considerable resistance. Japan's government officials are warning the Clinton Administration that its recommendations to stimulate Japan's domestic consumption are ``not constructive.'' The newly appointed Finance Minister, Hikaru Matsunaga, has made it clear that Japan would judge on its own what economic stimulus to deploy. ``We don't plan to draft stimulus steps based on the direction by other countries.''

While there have been some conflicting viewpoints as to what Japan's intentions are to stimulate its sagging economy, Japanese Prime Minister Ryutaro Hashimoto defended his government's economic policies at a recent summit held in London by the European and Asian Countries. His highly touted tax cut, which includes a $340 savings to the average Japanese household, has been criticized by economists as not being enough to reverse Japan's economic slide. And there is a serious concern, especially in the United States, that the weakness in Japan's yen will result in a flood of goods and products into the export markets and will continue to raise U.S. trade deficits that are already the largest in the world.

Repercussions from Japan's economic stagnation has brought increasing hardships to the Japanese people. The once guaranteed security of Japanese work in their jobs has come to an end. Businesses and industry are downsizing and permanently terminating workers as the once booming economy is now going through its most critical period.

What seems ironic in what is happening in Japan at this juncture is the fact that the Japanese people have trillions of dollars in savings, but because of the continued decline and uncertainty in the country's economy they have become extra cautious of cashing in or spending these funds on what is not necessary in the present circumstances. Being privy to the malpractices of Japan's banking and financial operations, and the collusion that has taken place between government officials and the business-financial establishment, the Japanese people have lost confidence and are skeptical of the country's leadership and the direction the nation is going at the present time. (It could be that the trillions of dollars in savings by the Japanese people are merely on paper, and it is doubtful that those banks and financial institutions that are still solvent in Japan have the reserves to cover these savings.)

The government of Japan has been seriously considering withdrawing some of the country's investments it has in U.S. government securities for the purpose of meeting some of its debt obligations and as a means to stimulate its economy. Considering the government of the United States depends on Japan and other foreign investments when it comes to selling and auctioning off its securities, the question comes up as to what impact will this have on the U.S. economy and the government of the United States that already has the largest debt of any nation in the world. Without the creation of debt, this economy and the operation of the Government would collapse and become inoperative. (Next, Economic Chaos Reigns Throughout Asia)

Economic Chaos Reins Throughout Asia

In spite of the phenomenal economic growth of the Pacific Rim countries, none has escaped the domino effect that has beset their financial and economic state of affairs. South Korea is one of the countries in the region that developed into the 11th productive nation in the world. Now it finds its economy in disarray with debts into the billions of dollars and has no way to meet the obligations of its creditors. Financed by multinational corporations and foreign investors that have businesses and holdings there, it finds itself between a rock and a hard place as debts continue to mount.

There are increasing doubts that the bailout by the International Monetary Fund of $57 billion will be adequate to stop the financial and economic hemorrhaging that South Korea is now going through. There are reports that it will take at least $150 billion to bring about some stability to the financial and currency crisis of South Korea. Like the rest of the Pacific-Asia countries, it has been plagued with speculative over-building, nonperforming loans and investments, and the underwriting of the banks to keep its industrial and business conglomerates afloat. (Two of its former Presidents were jailed for collusion, corruption and accepting bribes and recently released by the newly elected President.)

In the past, South Korea has had a strict restrictive trade policy. The government has vigilantly guarded its automobile and computer chip industries from foreign competition by providing unending loans, incentives, tax benefits, high tariffs and other trade barriers to keep the share of its domestic market by foreign countries to a minimum. But by accepting the loan from the IMF, it will have to restructure its financial system and open up its markets and financial services to foreign investors and other vested interests.

Already the parliament of South Korea has passed a law simplifying the procedure for companies to fire workers. Union leaders have charged that this law will throw out of work at least 1.5 million Korean workers this year, and they have vowed to fight this law to keep their jobs. The requirements by the IMF for a loan to carry out its austerity program will only aggravate South Korea's economic problems and create an explosive situation of uncontrollable social unrest. This in turn will provide opportunities for foreign financial and business interests to capitalize on the calamity of South Korea's financial and economic plight. (South Korea's largest carmaker, Hyundai Motor Company, has slashed production 60 percent because of mounting inventory of unsold cars. Hyundai produced 5000 cars a day before the financial crisis hit the country. It is producing only 2000 cars a day now. A strike by 13,300 unionized workers at Kia Motors Corporation, who took to the streets in Seoul's anti-government rally demanding job security, halted production at South Korea's third-largest automaker.)

Financial-Currency Meltdown All-Embracing

The spread of the financial and currency meltdown has been extensive and all-embracing in the Asia-Pacific region. Indonesia with a government that has been under the control of President Suharto for over three decades now finds its economy devastated and overwhelmed with debt and currency problems. It is estimated to have $140 billion in external debts that is owed to private companies. And Indonesia companies also owe $65 billion to foreign banks. The bulk of these borrowings are in U.S. dollars, meaning that these debts have become increasingly more expensive to service.

During the past three-decades, every facet of Indonesia's economy has been under the control of President Suharto along with his family and in collusion with the inner circle of the financial-business elite. Under Suharto, the operation of Indonesia's economy had become a syndicated plutocracy. As a result of greed, corruption, bribes and all of the other characteristics of a financial and monetary system permeated throughout the economy until it collapsed from its artificial indulgence or its own weight. Now Indonesia is confronted with mounting domestic problems.

While in the throes of a financial and currency crisis, President Suharto has tried to reassure the Indonesian people that the government could deal with the economic problem by announcing a new budget plan but failed to specify what reform measure would be taken to meet the growing social problems. At one time, Indonesia's currency (the rupia) had lost as high as 80 percent of its value since Asia's financial and currency meltdown. As a result of the rupiah's free fall in value, it created a panic among the people of the world's fourth most populous country. According to a report by Geoff Spencer of the Associated Press from Jakarta, people lined up more than 20 deep at the cash registers to buy rice, sugar, cooking oil and anything they could grab from the shelves before another price rise and before the rupiah depreciated any further.

The economic crisis has ignited centuries-old ethnic and religious tensions. Rioting and looting have broken out in many parts of the country. Making up only about 4 percent of Indonesia's population of 202 million, the ethnic Chinese have often been targets since Dutch colonizers allowed the Chinese into Indonesia hundreds of years ago. Those Indonesians who have been hurt the most from Indonesia's economic crisis have vented their anger at the Chinese merchants who have become a major force in the country. President Suharto has called on companies to ease the pain of the millions of low-income and unemployed Indonesians. To placate the rioters and looters who have targeted Chinese merchants, some of the most influential and rich are distributing food parcels and truck loads of rice, noodles and cooking oil to Indonesia's neediest families. It is unlikely that the magnitude of Indonesia's underlying social and economic problems can be checked by temporary expediencies and mere palliatives. And any sweeping measures to reconstruct Indonesia's economic and financial crisis by the implementation of austerity programs can only worsen what has already become a highly volatile situation.

There is nothing tangible to show that Indonesia's economic dilemma is getting any better, and it may be getting worse. Gerald Baker's article that appeared in the Financial Times (3/17/98) makes mention of some of the reasons why Indonesia's economy is in a state of flux. In this article Baker dwells on the conflict that is going on between President Suharto and colleagues with accepting and carrying out some of the programs of the International Monetary Fund. As Baker points out, two of the programs crafted by the IMF had collapsed since October, and the unprecedented third that just began in April has no guaranty that it will be any more successful than the previous programs. Because of the obstructive nature of President Suharto, the Congress of the United States with the U.S. Government being the largest contributor to the IMF is no longer willing to approve more contributions to the IMF without implementing tough conditions on Indonesia. While the harshest criticism has been vented against President Suharto and his elitist partners, there is now growing crass remarks about the IMF's programs and its inability to deal with the financial and economic problems of Indonesia and the Pacific-Asia countries.

Of all the countries in Asia that have felt the impact of the economic crisis, Thailand is going through one of its most serious currency and trade difficulties. Thailand's currency (the baht) has already lost half of its value against the U.S. dollar. It finds it difficult for its companies and businesses to obtain the finances that are necessary to buy the materials and the commodities to produce the products for export and domestic consumption. And the depreciation of the baht along with rising prices has created increasing social and internal problems that must be dealt with now.

Thailand must undergo more austerity measures to receive a $10 billion loan from the Internatinal Monetary Fund. To meet the requirements of the IMF, Thailand has already closed 42 troubled banks and companies, bringing to 58 the number that have been closed since June of the past year. Like most of the other Asian countries that have been affected by the financial and economic crisis, many of Thialand's banks and businesses were in deep trouble from excessive lending to developers of real estate who overbuilt and could not sell these properties or find clients to occupy them. Not to mention that cooking the books became a common practice.

In an attempt to keep some of its financial institutions and companies afloat, Thailand's central bank has lent $15.6 billion to those companies that are still solvent to stem the downward spiral of its currency and as a means to prop up or give the economy a shot in the arm. But Thailand is faced with a number of social and economic problems that will be difficult to overcome in spite of the measures the IMF and Thailand's central bank have taken to jump-start Thailand's economy and prevent it from deteriorating further.

Thailand's Minister of Labor estimates that 2 million more Thais will be out of work over the next few months. About 1.5 million Thais have already lost their jobs as companies have gone bankrupt or laid off workers during the free fall of the baht. As a result in the decline of exports, bad loans to builders and contractors during the building boom, and the heavy borrowing by the banks in foreign loans, Thailand's economy has been in disarray since 1996.

As the natives become more restless from what is happening in Thailand, it could set off an explosive situation or develop into one. Political and social tensions are nothing new in Thailand; it has suffered through more than a dozen coups in the past 50 years. Without a stable and viable domestic economy, and not being neophytes at insurrection and overthrowing past governments, anything can happen in Thailand under the present circumstances and under the controlling regime. There are reports out of Thailand that the people have soured and are turning away from Western ways.

Compared with other Asian countries that are heavily in debt and where their currencies have depreciated as much as 50 percent, so far Singapore's currency has fallen only 14 percent against the dollar. Up to this point, Singapore has managed to avoid many of the pitfalls that have plagued most of the countries in the region because of its favorable foreign reserves of about $74 billion and due to its flexible currency. But the fact that close to 50 percent of its exports go to the neighboring Asian countries, and half of those exports are in electronic products, who among these importing countries are in any position to finance and buy Singapore's products. It appears that under the present trade policies, any regeneration of Singapore's and the other Asian nations' economies will depend on the recovery of the entire region, which could be many years away. In the meantime Singapore will have to take steps to deal with the social problems that the other nations in the region are confronted with before the situation becomes unmanageable.

Like Singapore, Malaysia's economic conditions may not be as severe as the other Asia-Pacific nations. Nevertheless, its debts and the depreciation of its currency has become a serious concern in the country. Malaysia is taking sweeping new austerity measures to slow down the deterioration of the financial system. In an effort to prevent further erosion of its financial and debt crisis, finance minister Anwar Ibrahim has announced that the government would cut spending by 18 percent. If implemented, this new policy by the government will hit corporate enterprise hard and is expected to slow Malaysia's growth and development to its lowest level since 1986.

The new policies are designed to accept slower growth and development even at the expense of economic stability. One of the purposes of the new program is to reduce credit growth--currently expanding at 25 percent a year--and tighten credit policies on non-performing property loans and restrict lending for stock purchases. It will also make every effort to shore up its foreign exchange reserves that have slipped to $24 billion from more than $27 billion at the end of 1996.

In a recent meeting, Director Michel Camdessus of the International Monetary Fund praised Prime Minister Mahathir Mohamad for Maylasia's tenacity to put in place those programs to overcome its economic and financial crisis. But whether the corporate interests and the populace will accept the cutbacks along with rising prices and increasing unemployment just to maintain the financial system is another matter for the government to contend with. The people can only endure so much privation before the situation becomes intolerable. With the present state of Malaysia's economy, the corporate sector will need all of the incentives it can get from the government to stimulate their businesses and activities rather than restrictive measures as proposed by the International Monetary Fund.

The Philippines has many of the same financial and currency problems that plague the other Southeast and Southwest Asian countries. In an attempt to prevent any further decline and stabilize its financial system that is at a critical stage, the Philippine Central Bank is teaming up with commercial banks to check the scramble for dollars that has the peso reeling. In its program to provide large credits to hard-hit-countries, the IMF has allocated $650 million to the Philippines to meet its most pressing economic and financial problems. But even with the loans from the IMF, the Philippine government and companies will need additional funds to make payments on its foreign debts, pay for needed imports, and buy those raw materials and commodities that are essential to put its economy back in order.

The Philippine economy is still trying to recover from the devastation that occurred during the reign of the Marcus regime. But even with the help of the International Monetary Fund in directing the Philippine economy toward a market economy and the privatization of its banks and government enterprises, it will still need a massive infusion of economic aid or a new direction if the country is to bring stability to the economy and greater equality to all of the people. Poverty is still rampant and the disparity in income has not changed over the years to ameliorate the social deprivation. Most of the wealth is still in the hands of the large landowners and the business-financial elite. While already heavy in debt, just making more loans and going further in debt or merely udnertaking palliatives to cushion the shock of its crisis is not a viable long-term solution for the economic and currency problems for the Philippines.

Just where does Hong Kong fit in with the economic and financial crisis that has had a deteriorating effect of the economies of Asia? For one thing, Hong Kong is considered the finance capital of East Asia. According to a report by Sara Webb in The Wall Street Journal, Hong Kong is likely to remain so for some time in the future. As for its economy since the British handed its colonial control of Hong Kong to China, there has not been any radical changes in the way Hong Kong operates its economic affairs. Even before the takeover of Hong Kong by China, the ``communist'' government in China announced that it would not interfere with the ``free enterprise'' system as practiced by Hong Kong during the British rule.

Regardless of the difference in government operations and economic systems between Hong Kong and mainland China, they have been doing business with each other over a period of many years. As partners they have been making investments and raising capital at a rapid pace with a considerable amount of these funds being used to update China's infrastructure, such as energy development, telecommunications and transport construction. As part of China's modernization program, the cost of the Three River Gorge dam will cost billions of dollars. This partnership between Hong Kong and China may have a number of obstacles to overcome before it can become beneficial to all concerned.

While China has opened up its economy and has become less restrictive to foreign trade, it is not oblivious to what has happened to the financial structure of the rest of Asia. Confronted with its own internal economical problems, China plans to inject more capital into its shaky banking system. China's state banks are in a precarious condition with loans outstanding exceeding $1 trillion, the equivalent to its annual economic output. The World Bank estimates that 20 percent of the loans are bad, and the banks have less than 1 percent set aside in reserves to cover those loans. China's banking and financial system has reached the point where it will have to undergo a major shakeout or overhaul if its internal-domestic economic trade deficit with China has mushroomed to $50 billion (some estimates put the figure at $62 billion) and could surpass Japan as the leading exporter nation to the United States.

While the building of the Three River Gorge dam will provide China with more clean energy and facilitate its industrial and commercial development, the downside will in all probability outweigh its advantages. The dam will result in the dislocation and relocation of over a million Chinese farmers, towns and the people who live in the area. It is a no-win undertaking as China with 1.2 billion population has, according to China's government statistics, lost more than half of its arable land in the past 40 years. With 1/5th of the world's population, China has only 1/15 of the world's arable land. Considering all of the factors and the problems confronting China, demographics, lack of arable land and its geological resource base will determine China's future, not growth and development and world free trade based on merely financial considerations.

There are going to be many questions concerning what impact the Asian financial meltdown will have on the economies of the rest of the world. It is obvious that the magnitude of the financial and currency crisis has had severe economic repercussions on Southeast and Southwest Asia. Those nations that have investments, holdings and do business on a large scale with the Pacific-Asian region will take a hard hit from the financial fallout that has encompassed the Asian area. There is no way to ignore the fact that the domino effect has serious economic implications in a world where globalization and world trade have become a dominant force.

The Wall Street Journal's edition on World Business reports a detailed account of the extent of the global competition that is going on between investors and borrowers for the business of developing countries, especially those nations in the Asia region. With the title of Money Hunger in this issue on World Business, Urban C. Lehner reports that in 1990 only 12 countries had 84 percent of all private investments, but since then their share of the investments dropped to 74 percent as a result of competition from other countries. Since 1990 the private flow of investments in the economies of the developing countries increased five-fold to $243.8 billion. In 1990 the Pacific Asian nations received investments amounting to only $19.3 billion but by 1996 private foreign investments had increased to $108.7 billion and continued at a much faster rate.

Those private investors who represent some of the largest companies and financial institutions were convinced that the economies of the developing countries would continue to grow and develop at a high and sustainable rate. Now that most of these developing countries are on the brink of financial and economic disaster, the loss of the private investors and brokerage houses of those Americans who have part of their portfolio in these speculative ventures will no doubt have serious repercussions on their life savings and pension funds not to mention the balance sheets of some of the leading world banks and financial institutions.

Reverberations from Asian Financial Fallout

There have been different points of view as to what extent the financial fallout in Asia will affect the economy of the United States. There are reports that the financial and currency problems of the region will have a minimal bearing on the overall economy of the United States while other assessments present just the opposite outlook. Regardless of what observation of the financial and economic crisis prevails, there are already indicators that the financial breakdown of the Asian countries is having economic reverberations in the United States and in other parts of the world.

As a result of Asia's financial predicament and the volatility of the commodity markets, the suppliers of commodities and raw materials will have to make major adjustments in their economies to meet this downturn. Last year's immediate trigger for price declines came from Asia, a major source of commodities demand growth this decade. Aaron Lucchetti's article in The Wall Street Journal (1/2/98) reported that Asia's problems have hurt a wide range of the commodities market from cotton to soybeans to copper and platinum, especially those with consumption heavily concentrated in the developing region's countries.

As one of the major suppliers of all kinds of commodities, goods and services to the Asian region, a number of industries and businesses in the United States have been hard hit by Asia's financial crisis. The demand of base metals and other materials for building projects has come to a halt. As a result, the copper industry in the United States has reduced its production; this in turn forced massive layoffs of its workers. It is expected that more than $2 billion of U.S. farm exports will be lost this year. To offset this impact on U.S. agribusinesses and the farmers of the nation, Secretary Dan Glickman of the Department of Agriculture has decided to expand a government program to facilitate farm exports, lifting the Asian allotment from $455 million to $2 billion. The United States has been over the years a large supplier of meat, corn, soybeans, hides, poultry, fruits, and other products and raw materials to the countries in Asia. But, according to Donald Mitchell of the World Bank, commodity markets throughout the world have been overwhelmed from the surge of investments and technological advances. As a result, massive investments in overdevelopment have created an untenable economic condition worldwide.

Considering the plight of the Asian people from the breakdown of the nation's financial and economic system, the reconstruction, restoration and perpetuation of the financial system becomes secondary in the overall scheme of things. The social and economic conditions in these countries is already in an intolerable state where there are riots and demonstrations by the people calling for the leadership to step down or make way for a viable and more humane change in the social and economic operation. Increasing repression without making any provision to alleviate the deprivation of the people by the government leaders could lead to an explosive situation and possibly revolution.

By treating merely the symptoms of Asia's economic ills with what amounts to only Keynesian initiatives, the International Monetary Fund has not been received in the Asia-Pacific countries without skepticism and trepidation. Most of these nations have not been keen or receptive to the severity of the requirements by the IMF before any loan is forthcoming. They have expressed their objections to opening up their financial and domestic economy where foreign investors and interests can capitalize on their present extreme misfortune. And the populace of these countries are well aware that they will take the brunt of IMF's austerity program and endure more unemployment, poverty and hunger. The end result will be greater suffering among the people who have already been caught up in the web weaved out of the chaos of the financial and Price System.

Those Asian nations that have felt the shock of the financial and economic breakdown are beginning to have second thoughts about their role in the present world of high finance and global trade. Some of the leaders and officials of these countries are questioning and blaming the region's economic crisis on the transactions and exchanges of a monetary system that is controlled by those interests in the West, maintaining the system is stacked against them. They would prefer that the standard for their currency be based on the Japanese yen rather than the dollar, or the establishment of their own currency for the region.

While the economies of China and India were once spurned by the countries in Asia as anachronistic, they are now being held up as examples to prevent future financial and economic disaster. China and India have imposed tight controls on the flow of foreign capital and investments and kept in place what they consider necessary trade barriers. According to a report by Uli Schmetzer in the Chicago Tribune, China and India have remained relatively unscathed by the Asian economic crisis.

More than anythng else, the countries of the developing and underdeveloped world want to control their own destiny rather than be shackled and held hostage where they have to pay millions of dollars in interest to the rich countries and are forever making huge payments on loans and investments to the world's largest industrial nations and the biggest private banks. (The amount owed by the Third World and developing nations has been estimated at more than $2 trillion.) They do not see much difference from the economic imperialism of the present era than the colonial imperialism of the past. They are beginning to look upon the International Monetary Fund and the World Bank as merely fronts for the richest countries and only concerned with maintaining the status quo of the financial and monetary system. These organizations were not designed to take into consideration those factors that are essential in maintaining and operating a sustainable resource and economic base in the developing nations.

In a speech held in Hong Kong during September 1997 before the finance ministers and central bankers from 180 countries regarding currency fluctuations, capital inflows, GDP's, and market transparency, James Wolfensohn, president of the World Bank, made what seems to be a contrast to the agenda at this summit meeting with the following statement: ``We are living in a time bomb and unless we take action now, it could explode in our children's faces.'' He emphasized the point by the fact that 3 billion of the world's population live on $2 a day; 1.3 billion on less than $1 a day; and 150 million never go to school.

Like most former representatives of the business and financial establishment who are appointed to responsible positions in the federal government--and who seem to be out of touch with reality--, U.S. Treasury Department Secretary Robert Rubin said at the same summit that it was in the interest of the United States for the developing countries to continue to develop, because the richer they become, the more U.S. exports they will buy. Secretary Rubin must have been out to lunch when Wolfensohn made his speech during the proceedings at the meeting. With one-third of U.S. exports going to Asia, and with most of these countries having severe currency and debt problems and their overall economy in disarray, U.S. exports to these countries will be bleak for a long time to say the least. With half of the world working at slave and starvation wages, maybe world free trade is a misnomer and should be changed to half-world free trade. (Source of the information came from Thomas Wagner, Associated Press.)

The cure of Asia's financial and economic collapse is no better than the disease that is plaguing the economies of the Asia-Pacific countries. Considering the magnitude of the damage that has been done to the economy of the region, it is doubtful that just restructuring the financial and banking system will bring about long-term stability and balance in the operation of their economies: Not within the framework of the same financial and monetary system that brought about the present economic crisis. It is ironic that the value of the currencies in most Asian countries is compared with the American dollar, yet the United States is the largest debtor nation and has the greatest trade deficit in this global world of free trade and a market oriented economy.

Unless there is a comprehensive and fundamental conversion from the financial and monetary system (and all that it entails), and a medium based on a measurable and invariable standard put in its place, there will be no end to the economic breakdowns and the resulting cataclysmic aftermath to the countries and the people of the world. The world will continue to have booms and busts, recessions and depressions, inflation, deflation and stagnation, panics and crashes, graft and corruption, bankruptcies and defaults speculation, etc. All of the consequences that are inherent characteristics of a monetary and price system.

Instead of mobilizing our resources, expertise, technological know-how and personnel to restructure, maintain and perpetuate the anachronism of the monetary and financial system, America could lead the way by using its inventiveness for the purpose of implementing a new method of operating the social and industrial mechanism for a new system that would bring an equilibrium in the production and distribution of goods and services. Laying everything aside, this transformation should be our first and most important priority now and with the coming of the 21st century.

``If by lightening the labours of living, science increases production beyond the capacity of the distributive mechanism, it is the distributive mechanism that must be overhauled or scrapped, not the productive mechanism, and the distributive mechanism of the monetary civilization.''

From the book: Wealth, Virtual Wealth and Debt, The Solution of the Economic Paradox, by Frederick Soddy, Second Edition, 1933, E.P. Dutton & Company, Inc., New York, N.Y.