[OPE] The global financial crisis: implications for Asia

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aThe global financial crisis: implications for Asia
By Reihana
Mohideen

The Wall Street crisis seems light years away from
the side streets of Manila’s urban poor slums. For the
labouring masses in the Philippines the capitalist system has been in
crisis for some time now, unable to deliver life’s
basic necessities: jobs and a living wage; affordable quality healthcare
and education; and food security.

According to official
National Statistics Office data poverty levels have increased between 2003
and 2006, and 2008 is expected to be the worst year since the 1998 Asian
economic crisis. Between April 2007 and April 2008 the labour force grew
by only 81,000, while the number of unemployed rose by 249,000, i.e.
triple the increase in the labour force. In 2008 the number of employed
persons fell by 168,000 and there was no employment generation in April of
this year. Jobs were being lost at a time when prices and inflation were
skyrocketing.

The global financial crisis, however, now
threatens to affect the Philippines economy such that it impacts on the
higher income families as well. It could threaten the employment of
Filipino overseas workers whose remittances, amounting to a staggering
US$14 billion-plus in 2007, have been the backbone of the economy at a
time when foreign direct investment (FDI) has shrunk to almost nothing.
According to Bangko Sentral ng Pilipinas 2007 data, some $1.5 billion was
remitted from Asia, $2 billion from the Middle East, $2.3 billion from
Europe and more than 50% of all remittances, amounting to $7.5 billion,
came from the US.

Rumours are also rife that the state pension
fund, the Government Service Insurance System, is heavily exposed to the
US sharemarket and had invested in the now collapsed Lehman Brothers.
Despite public concern, GSIS is refusing to release a detailed financial
statement.

Decoupling debunked

The wild swings in
the Asian financial markets in response to the events in the US have
shattered any lingering myths that the Asian economies are decoupled from
the US economy, i.e. are safe havens relatively unscathed by the problems
in the US economy.

The 70% decline in the Shanghai composite
index from its October 2007 peak, the recent failures of Philippine and
Indonesian bond auctions, the downward pressure on Asian currencies as
varied as the Indonesian rupiah, the Korean won, the Thai baht, the
Vietnamese dong and the Indian rupee are just some highlights of the
collapse of the "decoupling theory". And news of the bailout
rejection by the US congress sent many Asian sharemarkets plunging, with
Japan's Nikkei 225 sinking more than 4 per cent,

When big US
banks are collapsing can Asian banks survive? Or will they follow?

On September 24 worried depositors lined up to withdraw their
money outside East Asia Bank, Hong Kong’s third largest
bank with $51 billion in assets. The panic was triggered by text-message
rumours that the bank was in distress. Depositors who lined up said that
after the failure of Lehman Brothers they no longer fully trusted any
financial institution.

Standard &
Poor’s and Moody’s both lowered
their credit outlooks for Bank of East Asia to negative, from stable,
after the bank was forced to restate its earnings for the first half of
this year and announce reduced first-half profit by $16.8 million. The
bank attributed the loss to a rogue trader, not global credit problems.1]

Reports in India that depositors were beginning to pull out
their money from the nation's largest private bank, ICICI Bank Ltd
promoted the Reserve Bank of India to reassure the public about adequate
cash reserves.

Asia is extremely anxious, and with good
reason. More Asian money is now invested in the US and other Western
economies than at any point in history. As much as 30% of Asian stocks are
foreign owned and linkages through bond, loan and derivative markets,
while smaller, are also significant. And while Asia may not be directly
exposed to the sub-prime mortgage crisis, the indirect impact on Asian
economies could be significant. Already in the first eight months of this
year capital outflows from Asia reached $38 billion.

The Asian
Development Bank (ADB) -- which pushed hard for the elimination of capital
controls thus leaving Asian economies dangerously exposed and vulnerable
to the massive swings in capital flows during the 1998 Asian financial
crisis -- in its usually upbeat Asian Development Outlook updates for
2008, warns that due to the Asia’s heavy reliance on
the US, Europe and Japan (G3) for its major export markets, slower growth
in the G3 will spill over into the Asian economies. According to the
bank’s chief economist: “Uncoupling
is a myth. Our study shows that the region still depends on industrial
countries to fuel its growth. If the global slowdown extends beyond 2009,
the repercussions for the region could be severe.”

As for the prospect of trade within Asia picking up the slack, according
to the report, this too could deteriorate as final demand for the
region’s exports diminishes. Aggregate GDP growth in
South-East Asia is now expected to decelerate to 5.4% in 2008,
significantly slower than the 6.5% growth achieved in 2007 (the ADB for
2007 predicted “robust growth in
2007-2008”). Growth projections for the Philippines,
Singapore and Vietnam are revised down significantly. Inflation forecasts
are the highest in a decade, and the rates are expected to rise
particularly fast in countries such as Vietnam.

The report
also assesses that the risks of a second Asian crisis have
“abated, but not disappeared”. If the
sub-prime crisis in the US worsens, Asia is bound to suffer much more
serious financial effects, including an abrupt reversal of the capital
inflows. If the Western economies get the flu, not only will Asia sneeze,
but it could catch a fever.

The political implications for the
labouring masses

The instability in the global financial
markets, the rise in inflation and the rise in commodity prices such as
food and oil indicate that the main pillars of the neoliberal capitalist
economic order are breaking up. Some left-wing economists argue that the
neoliberal economic order has exhausted itself and that the capitalist
system is unable to continue to function in this manner. Economic policies
based on low wages and stimulated consumption (via easy credit) are no
longer viable. This global crisis today also has a crucial environmental
dimension: that of climate change and global warming.

As
Marxists we understand that economic crises are a consistent feature of
the capitalism system and are rooted in the major contradictions
underlying capitalism: the contradiction between imperialism and
underdevelopment; of capital and labour. A more recent phenomenon linked
to post-WWII industrialisation is the contradiction between capitalism and
nature. This global crisis also has a crucial environmental dimension:
that of climate change and global warming. Marxists have also predicted
that in its attempt to solve these periodic crisis, capitalism deepens
these contradictions and raises them to a higher level, thus paving the
way for deeper and sharper crisis the next time round.

Governments around the world have no clear strategies to resolve the
crisis. Even the partial solutions they put forward to solve one aspect or
a particular manifestation of the crisis, exacerbates another aspect of
the crisis. For example, industrialised countries converted agricultural
food production to producing biofuels to deal with the potential shortages
in oil resources. This has now contributed to a shortage in food
production and a huge increase in food prices. Attempts to intensify oil
exploration and conventional fuels such as coal will exacerbate the
environmental crisis that threatens the very survival of the planet.

Struggle for power

Despite the severity of the
problems facing global capitalism today, there is no inevitability about
the ``automatic’’ collapse of the
system. It would be a dangerous illusion to think that capitalism will
simply collapse and that a socialist alternative will take its place.

The capitalist system is still extremely resilient. Previous
forecasts of its inevitable collapse have simply never materialised and
have been proven to be wrong. The system will struggle to survive and keep
itself alive – at whatever cost.

The
capitalist solutions to resolve the crisis will be at the expense of the
labouring masses and the consequences of the
``solutions’’ that it will impose on
us will be truly horrendous. Social movements alone, struggling around
particular issues, are inadequate to face the challenge and defend working
people and the poor against their assaults. We need to build political
movements, which struggle for power and system change, such as the
advanced movements in Latin America today.

[Reihana Mohideen
is the chairperson of Transform Asia, a Philippines-based institute
specialising in labour and gender studies. She is a political activist and
a founding member of Laban ng Masa, a broad left political coalition in
the Philippines. She is also a board member of the Institute of Political
Studies, which focuses on progressive political education and the training
of young activists in the Philippines.]

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[1] “Anxious Depositors Withdraw Cash from
Asian Banks”, by Keith Bradsher and Heather Timmons, New York
Times, September 25, 2008

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Received on Mon Oct 6 04:06:38 2008