The Asian Financial Crisis and Political Efficacy
The IMF (International Monetary Fund) has long been the main power of influence over developing nations’ economic and political policies. However, in the late 1990s, an economic crisis occurred at the hands of the IMF that largely impacted the influence and reputation of the IMF worldwide. In 1997, East Asia was met with a financial crisis beginning with the collapse of Thai currency. The Asian Financial Crisis was quickly exacerbated by the IMF in their attempt to liberalize domestic and international economies throughout Asia. As a response to the crisis, the IMF called for high interest rates, tightening of domestic credit, fiscal tightening, cuts in food and energy subsidies, and further economic liberalization across Asia. Countries had to comply with these policies because the IMF had the power of “gatekeeper” in the international market. Essentially, every country seeking a loan or wanting to participate in global trade had to receive approval from the IMF. If a country did not comply with the demands of reform from the IMF, they would essentially be cut off from the international market. The situation seemed dire as more and more countries became trapped in this vicious cycle that was the Asian Financial Crisis. However, as the IMF imposed more structural reforms on countries and as East Asia was thrust further into crisis, a pattern began to emerge for many of the affected nations. People began to realize that what the IMF was asking of them had nothing to do with fixing the crisis and everything to do with control. And as the IMF continued to make the economic situation in Asia worse, confidence regarding the IMF sank lower and lower. This led to several countries deciding that they were no longer going to take out loans from the IMF. Instead, many nations began self-insuring their economies by stockpiling international reserves. While this can be a risky practice, it ended up benefiting these nations (South Korea, Malaysia, Thailand, Indonesia, and the Philippines) by providing them some independence and insurance against future crises. This first act of rebellion against the IMF launched a global campaign for political and economic efficacy. Argentina was the first country to largely act on this. In 2003, Argentina defaulted on its loans from the IMF despite its capability to pay back the loan. This highly political statement liberated Argentina from any debt they owed the IMF and therefore, any control the IMF had over them. After a few months of experiencing economic downturn due to the default, Argentina began to experience rapid economic growth. Argentina achieved this growth by implementing policies opposite of those enforced on them by the IMF. This was proof to other nations that leaving the influence of the IMF and making decisions independent of external influence could boost their economies. After getting rid of its IMF program, Russia experienced massive economic growth under global rising oil prices; this allowed them to grow a large reserve independent of the IMF. Perhaps one of the most significant examples of political efficacy has been the growing independence of Latin America. Particularly in Latin America, the IMF has served as a means for US intervention. With the removal of IMF programs in many Latin American countries, this region has been able to establish new governments and regional economic institutions that have led to some regional stabilization.
Weisbrot, MArk. “Ten Years After: The Lasting Impact of the Asian Financial …”Center for Economic and Policy Research. N.p., Aug. 2007. Web. 9 Oct. 2016.