Phase two: shooting Asian tigers

lead goose. Now it turned its attentions to the fl ock following—the Tiger economies—for the second phase of its new dollar order.1

PHASE TWO: SHOOTING ASIAN TIGERS

The second phase of breaking up the Japan model involved destroying the east Asian economic sphere, a highly successful model that challenged the American dictates of rugged free-market individualism. The Japanese model, as Washington knew well, was not limited to Japan. In the postwar period it had been nurtured in South Korea, Thailand, Malaysia, Indonesia and other east Asian economies. In the 1980s, these fast-growing economies were labeled the Tiger states.

East Asia had been built up during the 1970s and especially the 1980s, by Japanese state development aid, large private investment and MITI support. While this had happened with little fanfare, in effect the booming economies of east Asia in the 1980s owed much to a deliberate regional division of labor, with Japan at the center and Japanese companies outsourcing manufacturing processes to east Asian centers. These were referred to in Asian business circles as the yen bloc countries because of their close ties to Japan’s economy.

The Tiger economies were a major embarrassment to the IMF freemarket model. Their very success in blending private enterprise with a strong state economic role was a threat to the IMF free-market agenda. So long as the Tigers appeared to succeed with a model based on a strong state role, the former communist states and others could argue against taking the extreme IMF course.

In east Asia during the 1980s, economic growth rates of 7–8 per cent per year, rising social security, universal education and a high worker productivity were all backed by state guidance and planning, albeit in a market economy—an Asian form of benevolent paternalism. Even more than Soviet central planning, the self-suffi cient Asian Tiger economies were an obstacle to the global spread of the dollar free-market system being demanded by Washington in the 1990s.

Beginning in 1993, at the Asia Pacifi c Economic Cooperation (APEC) Summit, as Japan’s banks struggled with the collapse of their stock and real-estate markets, Washington offi cials began to demand that east Asian economies open up their controlled fi nancial markets to free capital fl ows, in the interest of ‘level playing fi elds,’ they argued. Previously, the debt-free economies of east Asia had avoided reliance on IMF loans or foreign capital, other than direct investment in manufacturing plants, usually as part of a long-term national goal.

Now they were told to open their markets to foreign capital fl ows and short-term foreign lending. Given the rhetoric of ‘level playing fi elds,’ many Asian offi cials wondered privately whether Washington was talking about cricket or about their economic future. They soon learned.

Once capital controls were eased and foreign investment was allowed to fl ow freely, in and out, South Korea and the other Tiger economies were awash with a sudden fl ood of foreign dollars. The result, between 1994 and the onset of the attack on the Thai baht in May 1997, was the creation of speculative bubbles in luxury real estate, local stock values and other assets.

Once the east Asian Tiger economies had begun to open up to foreign capital, but well before they had adequate controls in place over possible abuses, hedge funds went on the attack. These secretive funds first targeted the weakest economy, Thailand. American speculator George Soros acted in secrecy, armed with an undisclosed credit line from a group of international banks including Citigroup. They gambled that Thailand would be forced to devalue the baht and break from its peg to the dollar. Soros, head of Quantum Fund, Julian Robertson, head of the Tiger Fund and reportedly also of the LongTerm Capital Management (LTCM) hedge fund, whose management included former Federal Reserve deputy David Mullins, unleashed a huge speculative attack on the Thai currency and stocks. By June, Thailand had capitulated, its currency was fl oated, and it was forced to turn to the IMF for help. In swift succession, the same hedge funds and banks hit the Philippines, Indonesia and then South Korea. They pocketed billions, as the populations sank into economic chaos and poverty.

Chalmers Johnson described the result in blunt terms: ‘The funds easily raped Thailand, Indonesia and South Korea, then turned the shivering survivors over to the IMF, not to help the victims, but to insure that no Western bank was stuck with non-performing loans in the devastated countries.’

A European Asia expert, Kristen Nordhaug, summed up the Clinton administration policy towards East Asia in 1997. Clinton had developed a major economic strategy, using the new National Economic Council, initially headed by Robert Rubin, a Wall Street investment banker. East Asian emerging markets were targeted for an offensive. ‘The Administration actively supported multilateral agencies such as the IMF … to promote international financial liberalization,’ Nordhaug noted. ‘As … the strategy of targeting