The US, the IMF, and Malaysia in the East Asian Financial Crisis

Malaysia has been a very special example for our research because its government steadfastly refused assistance from the International Monetary Fund. Its government worried that the IMF would impose restrictive loan conditionality such as economic transparency and efficiency that seemed likely to colonize Malaysian sovereignty. The UMNO (United Malays National Organization), which has been the dominant party in Malaysia, insisted that it was the ideological pillar of Malay political supremacy and maintained the “special rights” of the Malays. Thus, it was decided that ex-premier Mahathir had to avoid taking any of the IMF’s bitter medicine. Most Malay corporations were used to depending on government subsidies, but the conditionality of the IMF

284 Steven Erlanger, “To Ease Crisis, IMF Makes Philippines Emergency Loan,” New York Times, July 21, 1997.

285 Kim Scipes, “Global Economic Crisis, Neoliberal Solutions, and the Philippines,” at:

http://www.monthlyreview.org/1299scip.htm.

would be based on American capitalistic liberal and open principles. The IMF would have insisted that major government contracts be issued on the basis of an open tender system, not on the current negotiated basis that allowed the government to award contracts to those close to it, mostly UMNO-related companies and individuals. ²⁸⁶

The Malaysia-US relationship in 1997 was very bad because of strong Anti-Americanism.

Mahathir told the ASEAN (Association of South East Asian Nations) countries in July that they should not depend on any foreign power, making reference to the US betrayal of Southern Vietnam during the Vietnam War, which made US officials very upset and were even more mortified when Mahathir called for a review of the UN Declaration on Human Rights. US Secretary of State Madeleine Albright took a hard-line approach and warned that Washington would oppose any attempt to change the 1948 declaration. Washington was also irritated by Mahathir’s official visit to Cuba. Then there emerged a statement by Mahathir alleging that the currency crisis was part of a Jewish plot to destabilize Muslim nations. This led directly to a strongly worded resolution submitted in the US House of Representatives attacking the Malaysian leader for making

“inflammatory anti-American and anti-Semitic statements” and calling on him to apologize or resign.²⁸⁷ Mahathir repeatedly told the world that if the international financial institutions had found a way to restrain speculators, he would not have advocated imposing currency controls. However, IMF Deputy Managing Director Stanley Fischer claimed the Asian problems were caused by policy errors and bad governance on the part of the regional governments, not by speculators or the IMF.²⁸⁸

Generally speaking, the sense after the crisis that the United States was an unreliable partner in matters to do with international finance spilled over automatically into disillusion with the IMF. The region felt disappointed that it could not exercise its voice with the Fund and pursue favorable projects concerning the problems of the Asian states. The US usually cares about Latin America, and Europe has been a supporter of Eastern Europe and North Africa. Japan also feels excluded from the US-Europe “agreement” that the Managing Director of the Fund should be European and the First Deputy Managing Director an American. Japan’s nomination of its former Ministry of Finance

286 James Chin, “Malaysia in 1997: Mahathir’s Annus Horribilis,” Asian Survey, Vo. 38, No. 2, A Survey of Asia in 1997: Part II (Feb., 1998), pp. 183-189.

287 James Chin, “Malaysia in 1997: Mahathir’s Annus Horribilis,” p. 189.

288 Michael Billington, “Malaysia's Challenge to IMF,” at:

http://www.larouchepub.com/other/2004/book_reviews/3132malaysia_v_imf.html.

Vice-Minister for International Finance, Dr Eisuke Sakakibara, as a candidate for Managing Director in 1999 was an assertion of its discontent.²⁸⁹ The East Asian Financial Crisis explicitly reflected the domination of the US and its values in international finance.

Conclusion: The Changing U.S. Role in the IMF

Considering all of the above, the changing role of the US in the IMF can be clearly traced. The evolution of the quotas and voting powers fundamentally reflected the changing role of the US in the Fund. With the redistribution of economic power, the US could not solely decide critical affairs of the Fund, but had to resort to bargaining and negotiation for support. The US still had a substantial impact on the Fund from the mid-1960s to the mid-1980s through the special majority clause. The relatively closed openness and the huge power of the US ensured that America could prevent the passage of its unfavorable proposals. The revival of American hegemony in the 1990s enhanced its influence within the Fund. For instance, the globalization of US thought and values penetrated into the thinking methods of the IMF staff. Generally speaking, since the mid 1960s, the United States has been bargaining intensively for favorable outcomes by using hard power or soft power rather than obtaining them automatically as in the 1950s.

The US’s predominant role was played during the foundation of the Bretton Wood system, which reached its greatest power and position in the international arena after World War II. On the other hand, in sharp contrast to its overwhelming impact on the world international monetary system, the final collapse of the Bretton Wood system at the end of the 1970s would evidently be the best example illustrating its relatively declining power and influence. After the collapse of the Bretton Woods system, the IMF underwent numerous great, substantial or trivial, amendments, which reflect the changing role of the United States. At the same time, the transforming relationship of the European countries with the United States, from loyal and steadfast followers to wavering and hesitating counterparts, together with the rise of the Third World during the 1980s, placed pressure on the previously readily enforced policies and decisions of the United States.

Referring to some specific instances, the emergence of the SDR, a new reserve form, at the very beginning, seems to be the straightforward representation of the incredibility of US dollars from the

289 See the Official Website of the IMF, http://www.imf.org/external/np/ed/md/2000/es.htm.