XXIV/YOUR MONEY OR YOUR LIFE!
The October 1998 IMF package to keep Brazil afloat was also
financed by public funds. The plan enabled Brazil to go on servicing
its external and internal debts to the international and domestic
private financial system. Private financial institutions categorically
refused to contribute to this so-called rescue package. Instead, the
IMF ensured that their debts would be paid off, and they cynically
decided to hang back and refuse to make new loans to Brazil. They
adopted exactly the same stance in the face of the 1982 crisis. The
time has surely come to put an end to such publicly-funded bailout
packages for private finance.
SO MUCH FOR THE ADVANTAGES OF FINANCIAL
DEREGULATION
Right up until 1997, the IMF, the World Bank, the BIS and (more
reluctantly) the United Nations Conference on Trade and
Development (UNCTAD) sang the praises of financial liberalisation
and deregulation. This, they declared, was the way forward for all
countries seeking economic growth. Southeast Asia's high growth
rates until 1997 were cited as living proof of the success to be had
from pursuing such an approach. Once the region was plunged into
crisis, the IMF, the World Bank and the BIS declared that the crisis
was primarily due to the weakness of the region's private financial
sector. This was the best argument they could find to obscure their
own responsibility for what has happened.
Of course, the argument is wrong, and UNCTAD has been honest
enough to say so. In the press release introducing its 1998 annual
Report on Trade and Development, UNCTAD notes a weakening of
Asia's private financial sector. This weakening, it says, is the result
of the combination of three factors: first, the liberalisation of capital
flows; second, high interest rates set by private financial institutions
to attract foreign capital and discourage the flight of domestic capital;
third, exchange rates fixing national currencies to the dollar.
Together, these factors produced a massive inflow of capital which
thoroughly destabilised domestic financial markets. In other words:
yes, the financial system was weak; but, no, this weakness was not a
vestige of the pre-deregulation period, as the IMF, the World Bank
and BIS would have it. On the contrary, it was the policy of deregu
lation that weakened financial markets. Simply put, the huge inflow
of short-term capital was not matched by a corresponding increase