THE ASIAN CRISIS AND ITS INTERNATIONAL REPERCUSSIONS/225accentuated by the rise in the value of the dollar in 1996 and 1997.
These countries pursued a low-wage and high-interest policy aimed
at attracting foreign direct investment and speculative capital. This
policy created a distorted domestic market in which only a small
wealthy minority enjoyed high levels of consumption, and in which
speculative investment exploded in sectors such as real estate.
Financial and industrial concerns in the 'dragons' all took on high
levels of debt to undertake ma] or development pro] ects and to engage
in speculative investment practices. Local banks and brokerage firms
made huge loans without requesting adequate guarantees from their
debtors. When the vanguard among international and local financial
speculators - with George Soros's Quantum Fund in the lead -
determined that governments would be unable to defend their
currencies, they unleashed their attack, starting with the Thai bhat.
The first round of attacks proved to be a success, a wave of panic
selling followed; the local capitalists that could were quick to offload
their local currencies in exchange for dollars, which they invested in
safer markets far away. For this reason, Mahathir's condemnation of
international speculators is inadequate. He covers for local capitalists
who behaved in exactly the same way, sheltering their capital from
turbulence in the region. The Malaysian prime minister seems more
interested in finding a scapegoat to redirect the population's anger,
and thus to protect the region's homegrown capitalists. Indeed, like
his Thai counterparts, he seems to have found another category of
scapegoats - the large number of migrant workers both countries
have decided to expel.
The crisis has awoken the region's governments to the disadvan
tages that come with a massive inflow of volatile capital. This inflow
feeds a speculative financial bubble and pushes up the value of the
local currency (due to the enormous quantity of strong currencies in
circulation on the domestic market). An example of the change in
thinking in the region came from Cesar Bautista, the Filipino Minister
of Commerce and Industry. While not jettisoning his neo-liberal
creed, he made revealing statements in his 13 January 1998
interview with the French newspaper Le Monde. Asked, 'Do you think
that five years ago you should have let the peso fall below a rate of 3 0
to the dollar as some were suggesting? Could you have averted the
crisis by abandoning your policy of maintaining higher interest rates
than those of your neighbours?', he replied: 'Our currency was never
pegged to the American dollar. We always let the market determine