---------- Forwarded message ----------
Date: Thu, 1 Jan 1998 14:27:43 -0800 (PST)
From: Sid Shniad <[EMAIL PROTECTED]>
To: LABOR-L <[EMAIL PROTECTED]>,
Progressive Economists' Network <[EMAIL PROTECTED]>
Subject: letter to rubin (fwd)
> Date: Wed, 31 Dec 1997 17:21:13 -0500 (EST)
> From: Robert Weissman <[EMAIL PROTECTED]>
> To: Sid Shniad <[EMAIL PROTECTED]>
> Subject: letter to rubin (fwd)
>
> Below is a letter Ralph Nader and I sent earlier today to Robert Rubin.
> Please distribute as appropriate.
>
> Robert Weissman
> Essential Information | Internet: [EMAIL PROTECTED]
>
>
>
> Ralph Nader
> Robert Weissman
> P.O. Box 19312
> Washington, D.C. 20036
>
> December 31, 1997
>
> Secretary Robert Rubin
> Department of the Treasury
> 1500 Pennsylvania Avenue, NW
> Washington, D.C. 20220
>
> Dear Secretary Rubin:
>
> One of the more disturbing traits of the architects of economic
> globalization is their penchant for secrecy and apparent disdain for
> democratic processes. This modus operandi is problematic on procedural
> grounds alone, but also because it tends to foster policies that serve
> narrow corporate interests over broader taxpayer, consumer, worker,
> environmental and other citizen interests.
>
> Your involvement and leadership in the ongoing South Korean/Citicorp
> bailout illustrates the perils of top government officials crafting policy
> with very little democratic influence and virtually no public debate. One
> result is that the "national interest" is typically confused with
> corporate interests -- here the particular financial corporate interests
> of Wall Street. This is a natural outgrowth of Wall Street's intimate
> involvement in the process leading up to the announcement of the various
> South Korea bailout packages and the effective avoidance of any public
> disclosure and debate over the bailout.
>
> To be clear, there is no doubt that the globalization-induced Asian
> financial crisis and the South Korean meltdown in particular were and are
> serious problems. And there is no doubt the problems are complicated by
> the fact that, in globalized financial markets, perception is reality, at
> least to some significant extent in the short term. However, as serious
> problems, they merit open debate and explanation of policy choices by
> government officials -- not stealth meetings, secret decisions, concealed
> information, intentionally obscure comments from you and other officials
> and sudden reversals of policy. The priorities of democracy must be
> elevated over those of "the market" -- and if that sounds like an
> impossibility to you, then you should say so, in order to dispel illusions
> about the legitimacy of the decisions being made.
>
> As you may recall, in the first weeks of the South Korean crisis, you and
> members of the Clinton administration repeatedly asserted that U.S. funds
> would be involved in the South Korea/Citicorp bailout only as "a second
> line of defense." On December 3, South Korea and the International
> Monetary Fund (IMF) agreed to a $55 billion loan package in which South
> Korea agreed to substantial economic conditions. Of that $55 billion, $20
> billion was committed by the United States, Japan and several other
> nations. The U.S. contribution was $5 billion, drawn from the Exchange
> Stabilization Fund, a pool of money on which the president can draw
> without approval by Congress. That $20 billion, including the U.S. share,
> was specifically characterized as a "second line of defense" to be used
> only after the multilateral development bank money was exhausted. You
> continued to assure the American people that U.S. taxpayer money would not
> be put at risk.
>
> On December 24, in what may become known as the Great Christmas Eve
> Reversal, the Clinton administration agreed to lend South Korea $1.7
> billion next month as part of a $10 billion emergency loan package. In
> exchange for the loan, you extracted a series of additional South Korean
> economic conditions which are of questionable benefit to the South Korean
> economy, though of certain advantage to big U.S. banks and other
> corporations which will now be able to acquire majority stakes in South
> Korean firms at firesale prices.
>
> It is not surprising that to you globalization has certain imperatives,
> including taxpayer-guaranteed bailouts for overextended foreign
> conglomerates and financial institutions when they start collapsing, as
> well as their private U.S. corporate creditors.
>
> But the manner in which the loan packages have been crafted do not build
> public confidence for the administration's efforts. The packages have been
> drafted in secret. There was no genuine possibility for critical
> discussion, since up to the Christmas Eve Reversal, you had expressly
> disavowed the very policies you proceeded to adopt in what the New York
> Times called an "about face." The U.S. monies put at risk were drawn from
> a fund over which Congress does not exercise appropriation powers, denying
> the legislative branch its power of the purse and effective oversight.
>
> The loan packages impose an array of austerity measures on the South
> Korean economy which many economists have argued compellingly are exactly
> the opposite of what is justified by the underlying fundamentals of the
> South Korean economy. The financial markets, at least temporarily, did
> indeed respond positively to these measures -- but you could have shaped
> market perceptions significantly so that the herd mentality of financial
> traders did not lead to demands for counterproductive recessionary
> policies. The recessionary policies pushed by the IMF and the Treasury
> Department will throw tens of thousands of South Korean workers out of
> their jobs and depress the wages of those who hold on to their jobs, even
> though there appeared to be effective alternative policies (such as
> increased transparency and financial sector restructuring, with no
> macroeconomic dictates) available. Devaluation and other contractionary
> policies will also further the problem of cheap foreign labor undermining
> the jobs and negotiating leverage of U.S. workers.
>
> Meanwhile, the international banks who made loans to South Korean
> enterprises and are complicit in whatever imprudent loans were made will
> apparently be bailed out by the IMF and Christmas Eve Reversal packages --
> suffering no more than deferred payments. Knowing the financial industry
> from whence you came, how can you justify crafting bailout packages that
> inflict enormous pain on innocent South Korean workers, while letting
> reckless U.S. banks escape without a bruise?
>
> Furthering the inequity, the IMF and Christmas Eve Reversal packages
> require South Korea to open its economy to foreign mergers and
> acquisitions -- meaning that Citicorp, J.P. Morgan, Bankers Trust,
> BankAmerica, the Bank of New York, Chase Manhattan and others are not only
> bailed out, but then given the opportunity to buy up lucrative sectors of
> the South Korean economy -- a double windfall.
>
> How does the man who preached of the risk of "moral hazard" justify such a
> generous package for lenders and such a harsh package for the borrower?
> Given the precedent of the Mexican bailout, what limit is there on future
> bailouts? Why should investors not believe that bailouts will inevitably
> follow large-scale financial collapses through an obligatory new form of
> profit-propping foreign aid? Moreover, you should not underestimate the
> unintended consequences leading to widespread Korean resentment against a
> surge of absentee corporate ownership moving in on their local economy.
>
> Given Mexico and South Korea, you have a clear obligation to the American
> people to establish explicit standards for boundaries that reveal how far
> you and the administration are prepared to apply taxpayer resources
> towards additional bailouts of the foreign loans and investments of U.S.
> multinationals and the respective economies which receive the loans and
> investments. This is the minimum that should be expected to prevent future
> seat-of-the-pants policy decisions and sudden reversals of assurances to
> the public. The future will assuredly bring more crises; now is the time
> to establish a policy framework to assure that the "emergency" rationale
> is not endlessly invoked to justify frantic and flailing closed-door
> decisionmaking and bailout after bailout.
>
> Your handling of the South Korean/Citicorp bailout is a textbook study of
> the dark side of globalization. It is time for you to remember that you
> are employed by the people of the United States, not by the banks and
> financial houses on Wall Street.
>
> The first step in demonstrating your respect for the American people is to
> disclose the list of the big banks that are the ultimate recipients of the
> bailout. A second step would be to cease to make large-scale use of the
> Exchange Stabilization Fund without prior congressional approval, as
> proposed in legislation introduced by Senator Lauch Faircloth. Third,
> there should no administration request this spring for more funding for
> the IMF, which has demonstrated that is too secretive and too enchanted
> with pull-down austerity measures (which hurt working people in Third
> World countries and ultimately boomerang to hurt working people in the
> United States) to merit support. The administration should use its
> considerable influence to reform the IMF before asking Congress and the
> taxpayers to support greater funding.
>
> Finally, next time you dine in solitude at your hotel, you may wish to
> ponder the inadequacies of the administration's public indicators that
> prevented a higher quality of economic intelligence and advanced warning
> that might have alerted the administration much earlier to the turbulent
> undercurrents that erupted a few months ago into what is now called the
> Asian financial crisis. A broader array of empirical indicators, however
> unsettling they may be to narrow interests, are a reflection of a more
> anticipatory and therefore democratic process of decision making.
>
> Sincerely,
>
>
>
> Ralph Nader Robert Weissman,
> Co-director,
> Essential Action
>
>
>
>
>
>
>
>
>
>
>
