[Marxism] ADB initiative "neuters IMF in Asia"

[Marv Gandall]

Interesting commentary on Edward Harrison's Credit Writedowns blog
concerning this week's underreported launch of a $180 billion "Asian
Monetary Fund" by the Asian Development Bank (ADB) to counter capital flight
out of the region in the wake of the current global crisis. The ADB and the
notion of a separate credit facility has been resisted by the US as a
potential alternative to the US-controlled International Monetary Fund. The
ADB's pretensions were derided and thwarted by then deputy Treasury
Secretary Larry Summers and then Treasury assistant secretary for
international affairs Tim Geithner during the Asian financial crisis of
1997-98.

But now, says Bloomberg's Asian columnist, William Pesek, cited by Harrison,
the new bailout fund based on Chinese, Japanese, and South Korean capital
"takes things to another level...The pool, to be ready by year-end, largely
neuters the IMF in Asia..there is little a crisis-plagued U.S. can do to
stop it...its implications will travel far and wide in the fastest-growing
economic region."

http://www.creditwritedowns.com/2009/05/pesek-asia-is-de-coupling.html

http://www.bloomberg.com/apps/news?pid=20601039&sid=aaKSNypxRYfQ&refer=home

Harrison also reproduces a long previous contribution on his blog by mutual
fund manager and commentator Marshall Auerback, concerning the origins of
the ADB and competing American and Asian financial interests, which is
especially worth reading. Excerpts:

    [...]

    "Even prior to the Asian financial crisis of 1997, the Japanese had
begun to sell the idea of creating an Asian monetary fund to provide
regional liquidity. Almost as soon as the trial balloon was launched,
Washington shot it down with great force, sending Lawrence Summers, then
Deputy Secretary of the Treasury to the region to make sure the message was
not misunderstood. In spite of the subsequent travails experienced by the
region, the idea apparently died a quick death.

    "Or did it? When Haruhiko Kuroda, former Japanese Deputy Minister of
Finance for International Affairs, took over the helm of the ADB on February
1st of this year, he quietly began to promote the idea again. Kuroda has
long been a strong advocate of an Asian Monetary Fund, an idea whose time
may have come, given the increasingly low esteem with which the
International Monetary Fund is held, particularly in emerging Asia, which
has long been the world’s major savings repository.

    "It’s worthwhile looking again at the history of this venture: in the
spring of 1997, before the onset of the Asian financial crisis, Japan and
Taiwan had offered to put up $100 billion to help their fellow Asians cope
with any potential fallout which might arise in the event of a precipitous
withdrawal of short-term portfolio capital from their respective economies.
The idea was killed by then-Treasury Secretary Robert Rubin and Deputy
Secretary Summers, both of whom saw the idea as a threat to the monopoly of
the IMF over international financial crises. The US Treasury in particular
did not want Japan taking the lead in this area because Japan would not have
imposed the IMF’s conditions on the Asian recipients, and as a policy
objective for Washington, this almost superseded the importance of restoring
the region to full economic health.

    "We all know what happened subsequently. Instead of forestalling global
economic instability, the Treasury/IMF proposals helped make further
instability inevitable.

    "By killing off the idea of a competing Asian Monetary Fund,
Rubin/Summers enabled the IMF to continue in its guise as an ostensibly
“neutral” agency, thereby facilitating the implementation of the Treasury’s
agenda whenever a financial crisis which required the IMF’s intervention
arose. Of course, the “medicine” the IMF proffered had the ultimate effect
of weakening pre-existing financial structures by imposing Western measures
of financial restructuring, thereby giving Wall Street a huge stake in the
subsequent “reform” agenda introduced: Basle capital adequacy ratios were to
be applied. Highly indebted banks and firms were to be closed. Labour laws
were to be changed to make it easier to fire workers, facilitating the
closures. Regulations on foreign ownership were to be lifted in order to
allow foreign banks and firms to buy domestic banks and firms, injecting
needed capital and skills. All of which required lots of western style
restructuring and “reform”, and who better to offer this than America’s
finest investment bankers?

    [...]


    "It is understandable why Washington would continue to resist the notion
of an Asian Monetary Fund.

     "As things stand right now, in spite of the significant contraction in
bond yields since the late 1990s, western investors continue to extract huge
risk premiums from the entire emerging markets universe as a quid pro quo
for the provision of their capital. This is manifestly perverse, especially
when one considers that the ultimate source of much of that liquidity is
Asia. All of the nations of Asia continue to run large current account
surpluses, the proceeds of which are funnelled back into the US Treasury
market, where the savers obtain a yield of less than 5 per cent, in a
country which is now the world’s largest debtor nation, suffering the twin
diseases of a declining currency and higher inflation (both of which are
eroding the real value of the Asian creditors’ respective investments).

    "By contrast, even leading Asian conglomerates (whose products are
readily gobbled up by the American consumer) are forced to pay several
hundred basis points above the yield of Treasuries. The Western investor or
banker is extracting a wholly unmerited premium, whilst the US continues to
trade on its reserve currency and safe haven status to subsidise its
over-consumption and perpetuate the country’s growing financial imbalances.

    "It’s a great deal for Washington and readily explains the Treasury’s
violent opposition to an Asian Monetary Fund (or anything else that would
disrupt the existing status quo, such as restrictions on capital account
mobility). But must the world’s largest creditor bloc continue to act from
such a position of weakness, which is more apparent than real? The aggregate
net creditor position of Asia dwarfs its indebtedness. The domestic markets
are rapidly maturing and will soon be in a position to replace the American
consumer (who must surely retrench if the US is ultimately to come to grips
with its own debt disease).

    "The actions by Asia’s leading policy makers suggest an implicit (albeit
belated) recognition that they have been getting a raw deal from the
existing global financial architecture and are taking incremental steps to
redress the current imbalance. To be sure, historic rivalries, notably
between China and Japan (manifesting themselves most recently over Taiwan)
may slow the development of an AMF. It is also probable that the Bush
administration will likely go out of its way to exacerbate this rivalry and
thereby frustrate the development of competing multilateral agencies, which
would invariably weaken Washington’s influence in the region.

    "But in spite of these periodic setbacks, the trend appears clear. The
day is moving closer where an Asian Monetary Fund will become a reality. It
is particularly noteworthy that the idea continues to be pushed by Japan,
America’s staunchest ally in the region. Tokyo’s embrace of Washington only
goes so far. Ironically, if...America ultimately repudiates existing
obligations to its (largely) Asian foreign creditors, it will simply
catalyse this process and likely ensure the AMF’s swift arrival, in spite of
ongoing efforts to render this idea stillborn since 1997. The inexorable
logic of current economic policy making may yet introduce outcomes – such as
the introduction of an Asian Monetary Fund – completely at variance with
Washington’s oft-expressed preferences to the contrary. In any event, time
is definitely not on the side of the existing status quo."