|Photo by infomatique|
Contrary to the propaganda of austerity that a country’s debt crisis is caused by government profligacy, tax evasion, and people’s overconsumption, lax work ethics, and the pervasive sense of entitlement in the debtor country, the real causes of debt crises are often both structural (a country’s place in the global economy) and institutional (banking regulations). The Asian financial crisis of 1997 and the current Euro-zone crisis share structural and institutional elements conducive to a region-wide financial crisis. In both cases, financial liberalization enabled excessive credit circulation in countries with high growth rates. Secondly, at the sign of a declining rate of profit, foreign capital took flight from countries of high current account deficits. A contagion effect spread as more speculative capital withdrew from countries with a high rate of external short term debt. As countries with a debt payment crisis turn to international financial institutions (IFIs) for help, fiscal rescue packages were promised on the condition that austerity measures were implemented. Without addressing the root causes of the crises, IFIs insisted on the structural adjustment programs (SAPs) as a condition for loans and demanded that public services should be reduced to bare bones minimum so that a bigger portion of government budget can be dedicated to debt servicing. This is a very dangerous idea that was tried in Asia but utterly failed.
|Photo by FuturePresent|
At the peak of the Asian crisis, millions of people were thrown out of work and faced abject poverty in Thailand, Indonesia, and South Korea (called the Asian Three thereafter). Due to the IMF’s insistence on austerity measures, the Asian Three found their hands tied, unable to help mitigate social unrest resulting from massive unemployment and increased poverty. The situation developed into full blown social crises, resulting in major political upheavals in the Asian Three. In Thailand, tapping into the pervasive anti-IMF populist nationalism during the Asian crisis, Thaksin’s Thai Rak Thai Party seized power with strong support from the wider population. Although neoliberal restructuring continued under his administration, the Thaksin government moderated destabilizing impacts of neo-liberalism by extending social welfare measures. In Indonesia, a nationwide anti-austerity movement eventually forced the pro-IMF Suharto regime to resign. The new administration, now more responsive to popular demands, did not implement many austerity measures previously planned. In South Korea, anti-IMF sentiments contributed to the electoral victory of the opposition party leader, Kim Dae-Jung who was most critical of the International Monetary Fund program. As in the case of Thailand and Indonesia, the Kim administration did moderate the scope of neoliberal restructuring and introduced an extensive social welfare program.
|Photo by photoAtlas|
In Spain, a significant number of anti-austerity protesters refused to engage in electoral politics and as a result, the pro-austerity, conservative Popular Party was elected into power. As in the case of Spain, Portugal also saw an electoral victory of right-wing parties that are happy to cut welfare programs. In Greece, too, many anti-austerity protesters, disenchanted with electoral politics, refused to utilize electoral venues for a social change. In the absence of an alternative political opposition party backed by anti-austerity movements, the far-right political forces take advantage of the situation by exploiting mass resentment. With the anti-Troika, ultra nationalist narrative that immigrants and foreigners siphon off national wealth, the far-right fringe parties such as the Golden Dawn Party in Greece gain increasing support from the disgruntled populace who resent the sharing of reduced public services and welfare benefits with immigrants.
|Photo by furlin|
Partly due to these different state-civil society dynamics in Asia and Europe, the outcomes of the two financial crises have so far turned out to be different. With anti-austerity administrations in power, the Asian Three reversed IMF austerity policy and expanded social welfare. As a result, they were able to spur further economic growth and significantly reduced their external debt within a relatively short time period. In sharp contrast, with the electoral victory of conservative parties in the European Three, austerity measures are likely to prolong economic downturns and social instability in Europe. More alarmingly, the rise of ethno-exclusionary political parties in Europe can further divide civil society as sections of the populace turn against the most marginalized and powerless in society.