Introduction

The past sixteen months have been dominated by a financial crisis which began with the collapse of several South East Asian currencies in the summer of 1997. Rather than this being a totally new development, it was in fact the latest episode in an already long series of comparable crises, going back to the early 1970s. Therefore it was unlikely that it would just fade away. Such was not, however, the view of the so-called "experts" of the capitalist class.

Thus, earlier this year, on 24 April, the Singapore branch of JP Morgan, one of the biggest American investment banks, released a bulky report aimed at its corporate customers. «The financial meltdown is over» in South East Asia, said this report. Then it went on to explain that after the currency collapse of the previous summer, «lasting recovery will hinge on financial reform». Ultimately, therefore, what JP Morgan's experts called cynically the «cleanup», would be primarily a technical matter. Financial restructuring and concessions to international lenders by the countries concerned would do the trick.

In this rosy portrait of the situation, there was no mention of the possibility that local economic conditions might deteriorate much further - and they have, in most of the region's countries. Nor was there any mention of the exorbitant cost of the crisis itself and of the so-called "cleanup" for the region's populations. As long as financial activity could be resumed "safely", such petty matters were of no concern to JP Morgan's corporate customers!

As to the possibility of another crisis, this report stated adamantly that «another crash is unlikely.» True, there has been no further crash in South East Asia since this report came out. But only four months after, another financial storm broke out in Russia. And in fact, alarming cracks were already visible in Moscow when this report came out. The Russian stock market had been in shambles for two weeks. Interest rates on dollar loans to Russian state institutions and banks were already well above the 100% mark. And yet, these symptoms of international financial instability failed to shake the arrogance and self-confidence of JP Morgan's experts.

It is hard to believe that a US banker whose views must, of necessity, extend to the whole world market, should have simply ignored this new threat for the stability of world finance. It is even harder to understand such short-sightedness given what had happened only nine months before. If a currency meltdown in a relatively small and poor country like Thailand could send devastating ripples across the world, surely the build up which was then taking place in the much larger Russian economy should have been seen as a very serious matter.

In any case, when the crunch came in late August, the well-paid strategists at JP Morgan were, once again, caught unawares, just as were most of the world's financial experts. The meltdown of the Russian rubble triggered another storm across the world market, including in South East Asia. And the "experts" noted in their filofaxes that, after all, the financial crisis was not over.

From Bangkok to Tokyo

Let us go back first to what happened last year in South East Asia. The crisis was not a bolt from the blue. During the first three months of 1997 three large companies collapsed in Korea and in Thailand. There were already growing signs that unrecoverable debts were piling up in the region. Anyone could see this in the business centres of the region's capitals, where new luxurious office blocks remained totally empty. At some stage someone would have to pay for them, the question was, who, when and how?

In mid-May, in Thailand and the Philippines, the national currencies were the targets of massive attacks by speculators. So far these currencies had been pegged to the dollar - meaning that whenever their value on the market drifted too far away from a fixed dollar value or "peg", the central banks corrected this drift by buying or selling dollars. This time the speculators gambled on a fall of these currencies against the dollar. The two countries' central banks spent a large part of their currency reserves trying to contain these speculative attacks. To make up for these losses, they raised interest rates in order to attract more dollar-owning lenders. In doing so, however, they turned the screw on domestic borrowers - so defaults on interest repayments rocketed.

What then really triggered the financial crisis was an announcement made on July 2nd 1997 by the Thai government saying that it would no longer support the exchange rate of the Thai baht by throwing dollars onto the market. This amounted to admitting that the country's currency reserves had fallen to a critical level. It also amounted to a disguised devaluation. Almost instantly the baht lost over 15% of its value against the dollar.

From this point onwards events accelerated. The next day, the Philipino central bank had to fight off heavy speculation against the Philipino peso, before giving in by devaluating just a week after. Three days later, on July 14th, Malaysia followed suit and Singapore the next day. Indonesia gave in a bit later, in mid-August. Finally, by November, all the region's currencies had been devalued, with only one single exception - that of Hong Kong, which had managed to overcome the speculative wave thanks to its large currency reserves and the backing of China's central bank.

The speculative spree did not affect only the currency markets. Most of the regions' stock markets fell sharply as well, as speculators also gambled on falling share prices. By the end of 1997 share prices had lost between 25 and 40%, the property markets had collapsed and local banks were virtually bankrupt. However not all countries were affected in the same way. Taiwan, Singapore and Hong Kong were comparatively less badly hit by this first part of the crisis. But the others - South Korea, the Philipines, Malaysia, Thailand and Indonesia - were literally devastated by the financial hurricane.

At the same time, another financial crisis was unfolding in Japan, with potentially even more far-reaching consequences. In the last week of November, just as the South Korean government was seeking the IMF's help, the Japanese banking system showed its first major crack. Yamaichi Securities, Japan's 4th largest brokerage bank, went into receivership with a trail of liabilities many of which had been hidden illegally in various tax havens for a long time. The collapse of this heavyweight of stock market trading came only days after that of Takugin bank, a smaller commercial bank, but still the 10th largest in its category. And, as the following days were to show, this was only the tip of a huge iceberg of so-called "bad debt" (i.e. unrecoverable loans made by Japanese banks) and threatening bankruptcies.

There was a link, of course, between the cracks in the Japanese banking system and the financial crisis in South East Asia. For over half-a-century South East Asia had been the backyard of Japanese imperialism. Japanese companies had played, either directly or through local subsidiaries, a decisive role in the whole region's industry. Since the mid-1970s Japan had replaced the USA as the largest single lender to the region. By the time the financial crisis broke out, Japanese banks held 46% of the region's debt. Large-scale default on debt owed by South East Asia was therefore bound to create some problems to Japanese banks.

But in fact, the South East Asian crisis was the trigger rather than the cause of the banking system crisis in Japan. The scale of the losses incurred by Yamaichi Securities, for instance, was officially estimated at $27bn - which was more than the total $24bn owed by South Korea to all Japanese banks put together. All told, South East Asia accounted for only 1.6% of the total debt owed to Japanese banks. This was a significant amount, but it could certainly not account for the mountain of bad debts which was emerging slowly out of the rubble produced by the collapse of Yamaichi Securities.

In other words what was happening in Japan was a banking crisis in its own right, which had developed largely independently from the crisis in South East Asia. But at the same time, this banking crisis fed back into South East Asia. It created havoc on stock markets and in all yen-related trade and financial operations. It made credit even more difficult and expensive to obtain. In short it deepened the black hole of the recession across the region.

And from South East Asia to Russia

Altogether, in a matter of just six months, several dozen billions of dollars worth of so-called "foreign investments" disappeared from South East Asia.

According to business papers here, these investments were meant to be the building blocks of what they called the "South East Asian economic miracle". They were supposed to be behind the limited development of the region's new industries which, as the official line went, would ultimately pull South East Asia out of its past poverty. By the mid-1990s, the fad for these so-called "emerging markets" and the "globalisation of the economy" reached the point where we were told that, even in wealthy Britain, these "foreign investments" had a decisive role to play in the regeneration of British industry and the return to full employment after decades of under-investment by British capital. Therefore, just as in South East Asia, workers here had to make themselves "attractive" - i.e. willingly exploitable - to lure these "foreign investments" into Britain's derelict industrial heartlands.

But what are these "foreign investments"? Billions of pounds owned by large international banks, speculative funds of all kinds, pension funds, etc.. They are floated around the world by their owners and managers, not with the aim of contributing to the development of new production and infrastructure, but only in search of a quick buck.

In South East Asia, part of this money was used to speculate on shares and state bonds. But most of it was lent on a short-term basis - for a few months at most, sometimes even much less. This sort of investment was attractive for capital seeking hefty returns because interest rates were comparatively high. The capitalists were much too smart - or cynical - to believe their own propaganda about the "emerging markets". Without the reward of what they called a "risk premium" they would never have invested one penny in these markets.

In many cases the owners of this capital managed to make a smart profit on their way out by gambling against the local shares and currencies. In doing so they played a significant, if not decisive role in accelerating the financial meltdown. As to those speculators who did lose out in the meltdown, they had nothing to worry about - at least not the biggest among them. The IMF was there, on standby, ready to cut their losses. Indeed, by that time, the IMF had put together a series of so-called "rescue packages" worth a total $100bn for the three countries most affected by the crisis - Thailand, Indonesia and South Korea.

These "rescue packages" may sound like a lot of money and this was exactly the IMF's objective. Indeed, the role of these packages was partly psychological, to pre-empt panic movements among speculators and "reassure" them by demonstrating that the IMF would not let them down.

But the enormous size of these rescue packages is also deceptive. In general the money itself only arrives a long time after the actual announcement, when it comes at all. In South East Asia, the governments themselves never saw most of this rescue money. Some of it went straight into the coffers of the countries' largest creditors - mostly western banks, of course - in the form of interest or debt repayments. The rest was set aside as paper capital to provide the collapsed local banks with an asset base once they were duly restructured according to the IMF's guidelines. In any case these enormous sums of money were not intended to protect the populations against the impact of the crisis, nor even to prevent the disruption of vital industrial or agricultural production.

Having thus been divested from South East Asia, what happened to these "foreign investments"? There is no way to tell for sure. The very nature of floating capital is that it circulates around the world without leaving traces. The odds are, however, that they kept away from Asia for the time being and went to what their owners considered as more profitable shores. In any case, in the second half of 1997, there was an inflow of such capital into Russia.

Again this fresh inflow of capital did not result in modernisation projects for Russia's ageing factories, let alone in plans to build new ones. Rather, it was invested in the very profitable sphere of dollar bonds, which helped the state and para-statal bodies to finance their growing deficit.

Yet, even by the end of 1997, lending money to the Russian economy was certainly a risky business - probably more risky than in South Korea or even Indonesia, given the black hole into which the Russian economy had been sliding for years already. However, which capitalist worth his salt could resist interest rates as high as 50% and, even much more in the subsequent months, as the crisis built up? Whereas in South East Asia, speculators had considered that the profits to be made there no longer justified the risks involved, in Russia they considered that the much higher profits on offer justified taking much higher risks. But at the same time, of course, they were even more careful to keep all their options open, so that at the first sign of danger they could rush their cash out of Russia.

The flow of capital into Russia went on for a few months, draining the foreign reserves of the Russian central bank - until the beginning of April when the Russian stock market suddenly began to collapse. This time the catastrophe was avoided by yet another interest rate increase which probably convinced speculators that there was still more money to be made. But by that time, they had already decided that the golden days of Russian finance were about to come to an end for them. And the rats began to leave the ship in droves, while doing their best to grab a last morsel of profit on their way out.

What took place then in Russia was a scenario similar to the one which, the previous year, had brought the Thai baht to its knees after seven months of intense speculation. Only the economic crisis in Russia was already in many respects much more acute and deeper than in South East Asia. The respite gained by Yeltsin in mid-April was very short-lived. And the following month saw another speculative attack on the stock market with bonds and stocks falling sharply.

In early July, the IMF's spectacular announcement of a $22.7bn "rescue package" failed to stop the rot. And by mid-August the entire Russian financial system was on the verge of collapse. Nothing seemed to hold together anymore. The share and bond markets were in tatters, the banks were virtually bankrupt and so were the state's finances. On August 17th, the ruble's peg to the dollar was dropped with what amounted to a 34% devaluation. And as this failed to stop the slide, ten days later the government suspended all trading of rubles for dollars as well as the payment of interest on dollar debt bonds. Russia had gone much further down than the South East Asian countries. To all intents and purposes, it had defaulted on its debt.

Sinking "emerging markets"

The financial crisis which began in Thailand in July 1997 is not over yet. The odds are that the collapse of the ruble will not be the last explosive episode of this crisis. That it will carry on devastating South East Asia, however, is not even a probability. It is a fact.

But what was really behind these so-called South East Asian "emerging markets", which, according to the official line, were meant to pull the region out of the Third World?

The limited industrialisation of the South East Asian countries was the result of exceptional historical circumstances. Some of these countries - like Hong Kong and Singapore - were already used by Western multinationals as their main trading counters in the region. Others - like South Korea and Taiwan - had come out of the Cold War with substantial war chests and a privileged relationship with US imperialism. In every case, however, their industrialisation was the result of a determined policy on the part of the local dictatorial states. All available resources were devoted to this purpose and every means at their disposal were used to protect the fledgling local industry against foreign competition. In this they were helped by the fact that the Japanese bourgeoisie needed desperately to overcome the limitations of its relatively small domestic market. In the plans of Japanese imperialism South East Asia was to play the role that the huge American domestic market played for the US bourgeoisie. Japanese loans were thus made available on a large scale to the region.

It was only later on, once industrialisation had taken off the ground mostly in Taiwan and South Korea, that Japanese multinationals got involved. Under pressure from increasing competition on the world market, they sought to reduce their production costs by subcontracting non-skilled work to the region. This was how industrialisation spread eventually to the poorer countries - Thailand, Malaysia, Indonesia and the Philippines.

It was the frantic financial activity which developed in these countries from 1995 onwards which earned them the title of "emerging markets". According to official wisdom, the growth of the local stock markets and finance was meant to reflect the fact that these countries were about to join the industrialised world. The only problem of course was that all this financial activity had very little to do with the development of industrialisation. On the contrary, by 1996 the industrialisation process was already more or less stagnating.

What was really behind this financial activity was an enormous bubble based on grossly overvalued stock markets, frantic speculation on real estate and a ballooning indebtedness of the private sector. In October 1997, for instance, for every pound's worth of goods and services produced in Hong Kong, Thailand and Korea, £1.50 was owed to some finance institution. In all three countries, between 40% and 50% of outstanding credit and an even higher proportion of shares were in the housing and business property sector. Worse, in the first half of 1997, the fastest growing type of loan was to brokers - that is professional stock market gamblers! As to the stock market bubble it was illustrated by the fact that in Malaysia, for instance, the total value of shares was equivalent to over 3.5 times the country's annual production!

When the bubble burst, very little was left of all this. Financial activity had never created any wealth in and of itself, so its collapse did not destroy any either. Except that it did deprive entire sections of the economy from access to vital credit, thereby generating paralysis and large-scale closures.

In South Korea for instance, the enormous investment and the building of massive factories by the country's industrial groups - the so-called chaebols - would have been simply impossible without using credit on a gigantic scale. The Korean bourgeoisie itself was much too weak to provide enough capital - assuming it had been willing to do so, which is unlikely. The chaebols had access to limitless international credit thanks to the guarantees offered by the Korean state and the political backing of US and Japanese leaders. With the financial crisis, however, excessive use of credit came to be seen as a risk. As a result many chaebols have been forced to close down production facilities which will probably be left to rot forever - regardless of what social use might have been made of them instead.

The closures and bankruptcies that were not imposed by the credit crunch or by financial restructuring, designed to guarantee the companies' future profits, have been imposed by the collapse of the local currencies against the dollar and the yen. Being unable to buy imported parts, raw materials or machinery, many smaller companies could not survive.

All in all, the financial crisis has resulted in a massive destruction of productive forces in the region. In the poorer countries in particular, this may well mean the wiping out of what little progress had been made during the short-lived industrialisation boom.

The scale of the disaster is well illustrated by the changes in annual production which are officially expected for 1998 in these countries. They range from a 5% fall for better-off Hong Kong to a 15 to 20% fall for much poorer Indonesia. By comparison, Britain's GDP fell by only 6% during the Depression of the 1930s!

Unemployment and poverty boom

But the scale of the disaster in economic terms still does not say much about its scale in social terms.

In this respect the differences between the four main countries at the centre of the crisis resulted in differences in its social impact. At the highest point of the boom before the 1997 meltdown, Indonesia, the poorest and most densely populated of the four - with over 200m inhabitants - had a GDP per head only slightly higher than that of Egypt. Then came Thailand and Malaysia with a GDP per head comparable to that of Brazil. Finally, far ahead of the other three, there was South Korea, then the 11th industrial economy in the world with a production per head slightly below that of Portugal. To put it in crude terms, the poorest among them, Indonesia, was nine times poorer than South Korea.

The first victims of the financial meltdown were building workers. The banks turned off the credit tap and building firms went to the wall one after the other. The only sites that remained open were those which were state financed - and even then provided they did not fall victim to the subsequent rounds of cuts.

Yet it was the building industry which provided the poorest layers of the urban population with their main source of employment and income - even if wages were extremely low in that sector. As a result, despite the tears shed at the time by British papers on the unfortunate fate of smartly dressed stock exchange employees, these poorest layers were the first victims of the meltdown. In March this year, for instance, a report presented to a regional trade union conference estimated that 950,000 non-skilled jobs had disappeared in the building industry in Indonesia alone.

Eventually every industry was affected. Unemployment figures began to rise sharply. Not that these figures are any more trustworthy there than here. Only a fraction of workers are officially considered as wage earners and therefore potentially unemployed. The others, those who already worked in the so-called "informal" sector during the boom years, surviving on casual jobs, are simply ignored by official statistics. Even in South Korea these "unofficial" workers made up 45% of the workforce before July 1997. But distorted as they are the official unemployment figures give an idea of the extent of the castastrophe - between July 1997 and this autumn, they were multiplied by four in all four countries. As to the real figure, one of the Indonesian unions gave an estimate during a recent conference. They said that in addition to the 20m who were officially unemployed, another 43m should be added to take into account both the "hidden" unemployed and those casual workers living on very occasional income. This would mean that among the 90m individuals who make up the Indonesian workforce, two out of three have no regular work nor regular income.

For in these countries which were supposed, as we were told here, to "emerge" out of poverty, no serious attempt was ever made to provide the kind of social safety nets that still exist today in the rich countries. The employers' so-called "overheads" were reduced to the bare minimum. It was not for nothing that British politicians and bosses looked at South Korea or Singapore with much envy.

Even in South Korea, which is much better off in this respect than its neighbouring countries, the recently created unemployment fund only concerns a small proportion of the workforce. It provides full benefits for a maximum period of six months - but only for those who have worked continuously for the previous ten years. Needless to say that in the present context of fast rising unemployment such a fund is a joke. No wonder there has been a sharp increase of what some Korean papers call "IMF suicides" - workers who, having been made redundant, kill themselves and their entire families because they are convinced that nothing else can pull them out of total deprivation.

Unemployment and the absence of any real social safety net are not the only factors in the rise of poverty. Wage cuts and non-payment of wages are other factors. But the main factor is the sharp rise of staple food prices. This was highlighted by the hunger riots which gave a social dimension to last May's students' protests - thereby prompting the USA to drop their support for the then dictator Suharto. Since then the hunger riots have not stopped. At the end of August for instance, thousands took to the streets for six days in the main towns of Java, the most populated island of Indonesia. They ransacked supermarkets and rice stores. This was their answer to a sudden doubling of the price of rice, which had brought the cost of a kilo almost to the level of the daily minimum wage - which only applies to 60% of wage earners.

In fact this price rise is only partly due to the crisis. It is also a poisonous legacy of the boom period, when large companies invaded the countryside and replaced the staple food which used to be grown with products for export - like soya, wheat or some of the exotic fruits that can be found in Tesco. As a result all these countries, with the exception of Malaysia due to its smaller population, became net importers of food, including rice. With the currency crisis halving the value of the local currency against the dollar, rice has become a luxury item for a large part of the population of Indonesia and Thailand in particular.

Turning the clock back

There have been many reports by imperialist international bodies on the rise of poverty in South East Asia since July 1997. Not that this rise makes the leaders of imperialism lose any sleep. Otherwise, for instance, they would not have insulted the Thai population by setting aside only 1.7% of the IMF's "rescue package" to Thailand for the «social consequences of the currency crisis». If the leaders of imperialism pay any attention at all to this rising poverty, it is primarily because they are worried of the possibility of a real social explosion in the region. And although last May's riots in Indonesia never came anywhere near a full-blown social explosion, they certainly confirmed fears in Washington and London.

What do these reports say? One of the measures of poverty used by the United Nations is what they call the "poverty line". This represents an urban daily income equivalent to the value of one dollar in 1985. According to a report published by the United Nations in August, the proportion of those living under the poverty line in Indonesia increased from 11% in 1996 to 37% in June this year. The same report adds that at the present rate of economic decay, the figure will be 47% by the end of December and 60% by the end of next year.

What is significant in these figures is the trend they indicate. 47% living below the poverty line was the situation of Indonesia in the mid-1970s, whereas 60% would take Indonesia back to its situation at the end of the 1960s. In other words, from the point of view of the standard of living of the population, the financial crisis is expected to turn the clock back 30 years, to an era in which no-one had yet even dreamt of "emerging markets".

But this is not the only respect in which the financial crisis is turning the clock back for the populations of South East Asia. Western papers have often featured pictures of the twin Petronas Towers, the world's tallest building, which is the headquarters of the Malaysian state-controlled oil company in Kuala-Lumpur. According to the media here, these towers were a symbol of the emergence of these new markets out of their past under-development. And of course such symbols will remain. The luxury office blocks in Kuala-Lumpur, Bangkok and Jakarta are unlikely to disappear, even if they are empty and the lifts don't work for lack of maintenance.

What the papers seldom showed, however, was the sprawling shanty districts next door to these grandiose constructions. Prestigious projects never affected the lives of people in these poor districts - except when they were evicted to make space for some new project. But in some cases at least, the state did feel compelled to make a gesture toward the shanty dwellers, if only to make the insulting luxury of the boom more tolerable to the poor, or in a more down-to-earth fashion, to win their votes.

The Thai government, for instance, had decided to develop a sewage system for a poor district of downtown Bangkok comprising over one million inhabitants. A privatised British water company, United Utilities, won the contract. The project survived until the early days of December 1997, when the company's directors in London learnt that the Thai authority could not make its monthly repayment. United Utilities immediately pulled the plug. Not only was the construction work stopped but the section of the new sewage system that was already in operation was closed down.

Since then the whole business has been bogged down by court proceedings in London. By the time the dispute is resolved, assuming it is resolved at all, all the construction work will have to be redone. As to the needs of a million Bangkok poor for a sewage system, there is no space for this in the corporate balance-sheet of United Utilities.

There is no shortage of such examples. Little will be left of the few urbanisation projects which might have constituted a kind of dividend of the boom for the local populations. From this point of view, the boom will have been a mere interlude. It will leave a trail of disused buildings, factories and unfinished motorways, which will be left to rot without the populations ever having had a chance to benefit from any of this.

On the other hand, the boom years brought irreversible changes in social life which, now that these years are over, are leaving the poor populations worse off than they were before.

In Thailand, for instance, the boom years triggered a massive exodus - six million people in total - toward the capital Bangkok. Most of these internal immigrants made a precarious living out of the booming building industry. At the same time, their links with the countryside were broken by the shift in agricultural production mentioned earlier. Small farmers lost their land to large agro-business companies and big landowners, staple food agriculture disappeared as well as did many villages.

As a result, now that it has become almost impossible for them to survive in the towns, these internal immigrants no longer have the traditional last resort option available to most Third World countries' urban poor - that of going back to their villages. They have nothing, no-one and nowhere to go back to.

The danger of xenophobic and ethnic tensions

Finally, there is another way in which the clock might be turned back in South East Asia. The anti-Chinese incidents which were reported during last May's riots in Indonesia highlighted the multi-ethnic nature of these countries shaped by colonialism, and the ethnic tensions that a brutal rise of poverty could generate. All the more so as the regions' governments have been prone to play the ethnic card themselves, particularly through their victimisation of foreign workers.

In the boom years, there were up to six million foreign workers in South East Asia, scattered between Malaysia, Thailand, South Korea, and of course Hong Kong and Singapore. They came mainly from Indonesia, the Philipines, but also from Burma, Bangladesh and India.

One of the very first "measures" taken by the regions' governments after the 1997 meltdown was to pre-empt discontent among the local working class by blaming foreign workers for the rise of unemployment. This scapegoating was followed by repressive steps against this section of the working class. In Thailand, for instance, following a series of demonstrations against redundancies last January, the government ordered the forced repatriation of one million foreign workers from June - regardless of the fact that a large part of these foreigners belong to persecuted ethnic minorities from Burma.

It was, however, in Malaysia that the official demagogy against foreign workers reached the most extreme levels. Out of the eight million workers in this country, three million were foreign, half of them coming from Indonesia. As elsewhere, the government began by announcing measures of forced repatriation. The 25,000 Indonesian labourers working on the site of the new Kuala Lumpur international airport were even told in advance that they would be repatriated as soon as the first runway came into operation. During the first three months of this year, the Malaysian police carried out indiscriminate raids against foreign workers. According to official figures, 26,000 Indonesians were thus arrested and herded into detention camps near the capital. On March 23rd, there was an uprising in one of these camps. The police opened fire and shot eight detainees. A few weeks later, former inmates who had escaped from this camp told their stories to some Western journalists. It turned out that the police had tried to force the prisoners to take drugs so that they would not resist repatriation. The camp's uprising had been the prisoners' response to these outrageous methods.

There is obviously a danger of these policies whipping up xenophobic and ethnic tensions in the coming period, which would be a major setback for the regions' poor. However, despite the high coverage given here to anti-Chinese feelings in Indonesia, there is no sign of this happening for the time being. On the other hand, there are some causes for optimism.

An untold resistance

It was hard to find in the same British papers reports on the fights of the South East Asian working class to prevent the capitalists from forcing them to foot the bill of the crisis. Yet there has been a significant working class resistance against the policy of the capitalists since July last year, including some very large-scale strikes, both in Thailand and Indonesia. But it was in South Korea that the resistance of the working class was the most extensive.

There, the last months of 1997 saw a large wave of scattered strikes, which were often successful in preventing redundancies. Then, twice in the beginning of 1998, the country came close to a general strike against the government's attempt to facilitate large-scale redundancy measures. Eventually the leaders of the radical Korean confederation KCTU withdrew their threats and agreed to participate in a national body which was supposed to co-ordinate the rebuilding of the economy and prevent employers from taking "excessive" measures against workers. Of course, this was a trap. The large Korean industrial groups were simply preparing themselves for a confrontation at a time of their own choosing.

This time came in June. On 29 June, Hyundai Motors, the automotive branch of the Hyundai chaebol, which is also a stronghold of the KCTU, announced 1500 forced redundancies among its workforce. As it happened, Hyundai Motors had already cut 10,000 jobs in one way or another since the beginning of the crisis. But these 1500 redundancies were the first job cuts announced among blue-collar workers, who form the militant base of the KCTU. A few weeks later, when the names of the workers to be made redundant were published, it turned out that they included 115 KCTU activists and among them the KCTU's main leaders at Hyundai Motors. This was a clearcut provocation.

On 20th July, the 30,000 workers of Hyundai Motors at Ulsan occupied the plant. The strike lasted 35 days, involving many mass marches in Ulsan and in the capital Seoul, as well many violent confrontations with the police. However, it remained isolated, without any visible attempt by the KCTU leadership to use the militancy of the Hyundai strikers to build a generalised fightback against the chaebols and their government. On 24 August, the strike ended with a so-called "compromise" which was effectively a defeat: the KCTU leadership agreed to 277 forced redundancies while the remaining 1200 workers would be put on unpaid vacation for 18 months.

That this "compromise" was a victory for the Korean bosses was shown ten days later, when the police intervened to break an 18-day long occupation in the seven factories of the Mando Machinery Corporation, the country's largest car parts manufacturer. A similar settlement was forced on the union leaders but on that day, 2,400 strikers were arrested. Since then, Korean bosses have stepped up their attacks. Thus, on 14 September, nine banks made 20,000 employees redundant, or 40% of their workforce. Meanwhile KCTU activists have been taken to court under various pretexts. To date 232 of them are being prosecuted while 81 are in jail, including the president of the KCTU metal federation and all leaders of the KCTU's car manufacturing unions. And every day brings new announcements of redundancies and wage cuts.

The Korean workers' militancy has failed, therefore, for the time being in any case, to stop the attacks of the chaebols. But this struggle is far from being over. A new working class offensive may still take place, on a scale similar to that of the 1980s, when conditions were in many ways even more unfavourable for the working class. And the Korean bosses may soon find that their victory was short-lived after all.

The financial crisis in perspective

In reality, it is impossible to dissociate the present financial crisis from the general capitalist crisis which began in the early 1970s.

Under the postwar Bretton Woods agreement the industrialised world's monetary system had been based on the US dollar. All currencies were pegged to the dollar and the dollar itself was convertible into gold at a fixed rate. This guaranteed worldwide financial stability and was vital to rebuild trade relations in the postwar period.

However increasing inflation caused in the USA by military expenditure, in particular due to the Vietnam war, made this agreement unworkable. After a series of monetary disorders, it was finally decided in August 1971 to terminate the Bretton Woods agreement. The dollar ceased to be convertible into gold and the various currencies were allowed to float against one another. This marked the end of the postwar period of relative economic expansion. The colossal destruction of World War II had given the capitalist system a 25-year long breathing space. But this breathing space was now over. The same forces which had brought the capitalist economy to its knees during the Great Depression of the 30s were now back on the forefront of the world scene.

The new period - in which we still are today - saw the return of the pre-war monetary instability. Returns on productive investment became more uncertain. Capitalists worldwide became less willing to commit their assets to long-term investment. Capital shifted increasingly from the sphere of production to that of finance and services, thereby reducing the amount of new wealth which was produced by human labour worldwide. The world economy embarked on a course of relative stagnation, punctuated by a long series of crises of varying importance.

Among these crises, the most important were the 1973 dollar crisis, the oil crisis the following year, the Third World debt crisis in 1982-85, the worldwide stock market crash of 1987, the Tokyo crash of 1990 and the Mexican collapse of 1994-95. Each time, of course, the imperialist leaders and their experts were careful not to use the word "crisis". Instead they talked about "readjustments", "corrections", "blips" or anything else which could not be taken as an admission that the system was indeed in crisis. But the mere fact that these "corrections" had to take such brutal forms, often with catastrophic social consequences for entire populations, was nevertheless in and of itself the unquestionable proof that the whole system was indeed in crisis.

The Tokyo crash has a particular relevance to the present situation in that, in most respects, it provides a conducting thread to understanding both the South East Asian financial crisis and the banking crisis in Japan.

Its origin goes back to the so-called "Plaza agreement" of 1985. This was meant to be another "re-adjustment" based on co-operation between the US, French, German, Japanese and British governments. Its aim was to reduce the over-valuation of the dollar which was threatening to choke the US economy. Japan, in particular, had to agree to re-value the yen against the dollar. And within 12 months, the yen's value against the dollar increased by 50%.

In Japan, this was a major blow for exports. To avoid the risk of a recession, the Japanese government introduced a vast programme of state-funded public works and reduced interest rates to a low 2.5%. These measures resulted in a sharp boost for the entire economy, thanks to increased domestic demand and cheap credit. But they also created the conditions which were soon to produce a huge financial bubble.

The public works programme triggered a rise in real estate prices. As low interest rates restricted the profits that financial institutions could make on direct money lending, they shifted to real estate and stock market speculation. The availability of cheap money due to low interest rates encouraged speculators to gamble for increasingly high stakes. The Japanese banks got involved in direct speculation, while lending enormous sums to speculators and real estate developers both in Japan and abroad, particularly in prestige business developments in California and London.

By the end of 1989, share prices on the Tokyo stock market reached a historic peak, at nearly three times their present value in yen. Meanwhile real estate prices achieved ridiculous levels: in 1989, it was calculated that the total paper value of Tokyo's housing and business properties was the equivalent of four times that of the entire USA!

Eventually, the bubble burst. The Tokyo stock exchange crashed on 2nd April 1990 and, over the next fourteen months, share prices fell by 65% before returning to half their pre-crash level. The real estate bubble burst simultaneously. Property prices went on falling for over four years, and were more or less halved by the end of that period. Japanese banks were left with a huge amount of unrecoverable debts, due to the combination of property developers going bust at home and abroad and stock market speculators defaulting on their debts. And the Japanese economy slid into recession. In 1995, several banks collapsed under the weight of their debts, prompting the government to bail out the most threatened financial institutions the following year. But even after this massive injection of public funds, estimates of the Japanese banks' total "bad debts" still varied between $350bn and $900bn at the end of 1996.

The origin of the present banking crisis in Japan can therefore be traced back to the explosion of the speculative bubble in Tokyo back in 1990. But the same can be said, to a large extent, of the build up of the speculative bubble in South East Asia. It was capital divested from Japan in the early 1990s which created the initial impetus for the development of the financial sector in South East Asia. When, after the Mexican crisis of winter 1994, they were joined by a new flow of floating capital leaving Latin America, the ground was already prepared for the development of the huge speculative bubble which finally burst in July 1997.

Contrary to what has been argued so many times by the so-called experts, therefore, the present financial crisis and the Japanese banking crisis are not merely regional developments. They are the latest episodes of the worldwide crisis of capitalism which began almost 30 years ago.

More meltdowns in store?

Judging from our situation here in Britain, it may seem that the financial crisis has had little effect outside South East Asia and Russia. This may be true for the rich countries, although even that needs to be qualified, but it is certainly not true for most Third World countries.

To various degrees the world's poor countries have become targets for floating capital over the past decade or so. In the poorest countries, the scope for speculative profit was limited since there was hardly any wealth to grab locally. But in others, speculative bubbles have developed in a way comparable to what happened in South East Asia. Such was the case in Latin America in particular.

When the financial crisis broke out in July 1997, the first reaction of the owners of floating capital operating in Latin America was one of fear. Many withdrew their capital as quickly as they could rather than taking the risk of being caught in a generalised meltdown affecting all the so-called "emerging markets". Others, particularly the biggest players who could hedge their risks more easily, sought to benefit from the situation by betting on a fall of the local stock markets. Of course, they won their bets and the local economy had to foot the bill for this. Local currencies and stock markets were shattered and state indebtedness soared. By the end of 1997, the fall of share prices on Latin American stock markets was comparable to that in South East Asia.

This year, the impact of the meltdown was even more visible than last year. Between August and September, the Brazilian stock market fell by 40%. But in addition, the country has been faced with a continuous and massive outflow of capital. $20bn fled out of Brazil in August and $24bn in September. This threatens the country's ability to sustain the exchange rate of the Brazilian currency, the "real" - which is loosely pegged to the US dollar. As a result, the Brazilian central bank has had to raise interest rates to nearly 50%. And since more than half of the country's $256bn internal debt is made of short-term bonds carrying a variable interest linked to the central bank's base rate, this means an enormous burden on the state's finances. At the same time, because credit has become tighter, the economy is slowing down. Already this year's Brazilian industrial production is expected to be 6% lower than last year.

In many respects, therefore, the situation in Brazil combines the pre-crisis symptoms seen in South East Asia together with those seen in Russia.

It is little wonder, therefore, that the IMF announced a $41bn rescue package for Brazil earlier this month. The leaders of imperialism are obviously afraid of another financial meltdown in Brazil, by far the largest economy in the region. And they are doing their best to reassure speculators and get the present flow of capital out of Brazil to stop.

But there are even more pressing reasons for the IMF to want to prevent a crisis from breaking out in Brazil. With its 160m inhabitants, Brazil accounts for 45% of Latin America's GDP. If Brazil goes into recession, the whole of Latin America will follow. And unlike South East Asia, Latin America is the backyard of US imperialism. It absorbs 18% of the United States' exports. Most of its external debt - worth around $500bn - is held by US banks. Moreover the relationship between Western banks and Latin America is much closer than was the case in South East Asia with Japanese banks. For instance, 20% of the Brazilian banking system is directly operated by a handful of large foreign banks - including HSBC-Midland. In other words, the reasons for the IMF to be worried about the situation in Brazil has to do with the direct consequences a crisis there would have for the US economy itself and the world banking system.

Systemic ripples in the rich countries

At the same time imperialist leaders also have cause to worry about the indirect impact of the last two explosions in the rich countries.

So far the most visible impact was a series of ripples on the world's main stock markets. However after the first ripple, in October last year, stock markets quickly recovered. In fact the rise of share prices between January and June this year seemed very promising - 20% in London, 18% in New York, 44% in Paris. So that commentators promptly declared the financial crisis to be a thing of the past.

Yet June 1998 marked the end of this new success story. Even before the meltdown of the ruble, the same stock markets began to go down again and when a new ripple came at the end of August, it wiped out practically all the gains made since the beginning of the year. Since then stock markets have resumed their upward march. But although the New York stock market temporarily broke a new record this month, the general trend has been much slowler and, above all, much more irregular than previously. This is why business experts have added another word to their usual vocabulary - "gyrations" - to describe the ups and downs of the markets. In doing so, they just expose their own impotence at predicting which way the trend is going to go!

Of course, we are not shedding tears over the fate of shareholders, nor do we share the concern expressed by papers like the Financial Times, which complains about director's salaries becoming "precarious" due to uncertain returns on share options. After so many years of fast-rising stock markets, shareholders are certainly not in dire straits! And if they end up experiencing some losses, it will be a bit of a change and their problem, but certainly not ours.

But the fact is that these "gyrations" have actual and potential consequences which are much more serious than this.

Stock markets are not the only area of the world financial system affected by such "gyrations" or renewed instability. Currency markets have been badly affected too. For example, at the end of last May, the yen suddenly fell against the dollar, reaching a 7-year low on 27 May. On 11 June, the US Treasury Secretary Rubin made a statement ruling out a US intervention to stop the slide of the yen. The next day the yen broke a new record, at 145 yen to one dollar. So that on 13 June, the American Federal Bank finally joined ranks with the Japanese central bank to prop up the yen. This temporarily succeeded in stopping the slide of the yen, but not the "gyrations" in the exchange rate between the yen and the dollar. Thus, long after the turmoil caused by the collapse of the Russian ruble, on 7 October, the dollar suddenly fell by 18% against the yen in just 48 hours - the biggest such fall since the early 1970s.

Ironically in both cases, the experts blamed the disorder caused by the Japanese banking crisis - proof that it could be blamed for both strengthening and weakening the yen! But whatever the real causes of such "gyrations", they tend to produce chain reactions. Not only are yen-to-dollar trade and transactions disrupted, but in fact so is the entire currency market which is overwhelmingly dominated by these two currencies. Each time, it means more strain on the finances of the weakest economies, greater risks of forced devaluations and threats of further gyrations.

How much these "gyrations" are due to the present financial crisis itself or to other factors, is obviously very difficult to say. But there can be no doubt that the current financial crisis has significantly increased the instability of the world's financial system. And judging from the endless complaints about this in the business papers, this is something which worries the capitalists.

Behind the financial instability

Of course, the fact that the smallest hiccup in the capitalist system usually has international repercussions - the so-called "globalisation" - is nothing new. Nor is the instability of the capitalist system as a whole.

Since the beginning of the century, capitalism has been a worldwide fact. Even where no capital existed as such, the capitalist market has spread its tentacles and taken over most aspects of economic life. The vehicle for this expansion of the capitalist market was the meteoric rise of finance capital at the end of the last century. Large-scale banking, shareholding and other financial mechanisms made it possible to overcome the atomisation of wealth due to private ownership. This allowed capital to be mobilised on an unprecedented scale in the development of industries which required enormous long-term investment. By the time of World War I, the economy of the rich countries - and therefore the entire world economy - was already controlled by a relatively small number of very large financial conglomerates.

The consequence of this however was to create an increasing gap between the individual capitalists and the productive sphere. Instead of living a parasitic existence on the value produced by one particular group of workers, an increasing number of capitalists became parasites of the system as a whole, living off the labour of the entire working population. They no longer had to depend on the prosperity of one section or another of the economy. If profits slumped in one industry they could always shift their capital to a more profitable one. This encouraged reckless behaviour as individual capitalists competed for the highest possible profits. It also increased significantly the blind nature of capitalist production, by widening the gap between what was being produced and what the market could absorb - i.e. could pay for, regardless of the needs of the populations, of course.

The inter-war period, in particular, was marked by constant financial speculation and frequent flows of capital from one sector of the world economy to another, which in turn produced a long string of bankruptcies, financial crises and production crises. Sometimes, when this speculation centred on raw materials for instance, entire countries were shattered. Latin America, in particular, was badly hit by several speculative waves. This permanent instability eventually culminated with the world Depression of the 30s.

But if the overall instability of the capitalist system is not new, it has increased significantly over the past two decades or so, due to a number of factors, which are all rooted in the general crisis opened up in the early 1970s.

The main factor has been the increasing need of governments for fresh funds. Since the early 1970s, governments have been diverting an increasing proportion of their resources towards the capitalist class, to make up for the impact of the crisis on profits. New forms of direct and indirect subsidies, fiscal privileges, state guarantees on trade, tax reductions, over-priced procurement - all kinds of devices have been invented in order to maintain the profits of the bourgeoisie. The cost of this has been the ballooning indebtedness of the rich countries.

In order to attract a steady flow of capital to feed the black hole of their debt, each state had to make itself attractive to potential lenders, in particular by playing with interest rates. In doing so, they generated instability in the currency market. This attracted the interest of finance operators far more than the sole prospect of lending their funds to the states. Speculation on currencies, interest rates and debt bonds became a major activity for the financial industry.

At the same time and still with the same aim of attracting more capital, the rich countries' states removed the various obstacles which could slow down the flows of capital, to ensure that no state would have a competitive edge in finding the capital it needed to borrow. This led to the financial deregulation of the 1980s. Due to the general crisis of the system, the capitalists were reluctant to invest their funds in the productive sphere. They were demanding other sources of income. When the changes introduced by governments offered them a wide new field of financial activities, they grabbed the opportunity. Instead of just making it easier for governments to satisfy their needs, the financial deregulation led to an enormous growth of the financial sector and, as a result, created the conditions for a huge speculative boom and a situation of permanent worldwide instability.

The financial explosion

Many examples can be given of the exponential development of finance capital and speculation. For instance, according to the Financial Times' latest estimate, the daily turnover of the currency market varies currently between $1,600bn and $2,500bn. This is nearly twice as much as two years ago and 12 times more than in 1987. Out of this total, less than $200bn are actually required by international trade and tourism. The rest, which represents far more than the total currency reserves held by central banks across the world, is traded for purely speculative reasons.

Likewise with shares. Over the past ten years, the value in dollars of the rich countries' production increased by around 50%. But the total value of shares has trebled. As to the total value of what the experts call "derivatives" - that is the equivalent for a City trader of what a Lottery ticket represents for the rest of us - it has been multiplied by nearly 20!

This enormous growth of speculative activity reflects the size and speed of capital flows today, as a result of financial deregulation. Only two decades ago, moving large funds from one point of the world to another would have required going through various intermediaries. This involved paying sizeable fees and, more importantly, it took a significant amount of time. Today, shifting a billion dollars from London to Bangkok involves just the cost of a phone call and takes no more than a few seconds. The world's financial centres are now all connected together via telephone and satellite links and the only intermediaries in such transactions are computers. It is even possible now for any company to carry out such transactions from its own headquarters. The role of stock markets as trading places is more or less over.

At the same time the concentration of finance capital has reached unprecedented levels. The world's largest stock markets are now effectively in the hands of only a handful of financial groups - ten in the case of the City. The largest banks control more funds than most governments, except those of the richest countries. Thus UBS, HSBC-Midlands and the new Bank-America all have assets larger than the British government's annual budget. Financial groups of that size have the means to threaten most states with bankruptcy, should they fail to toe their line. So much economic power concentrated in the hands of such a small number of large companies is another decisive factor which fuels the system's instability.

But financial deregulation has also given comparable powers to much smaller players whose behaviour can be much less predictable than that of large banks. This was illustrated recently by a "rescue operation" organised on 23 September by the US authorities and some of the world's largest banks. The object of this rescue was an American "hedge fund" called LTCM (Long Term Capital Management) which had got itself into big trouble after the collapse of the Russian ruble.

Much has been said about the decisive role that these "hedge funds" are supposed to have played in generating the market turmoil of the past two years. But what are these "hedge funds"?

Without going into technical details, they are speculative funds reserved for a selected few. To participate in a hedge fund one has to fork out a very large minimum investment. In the case of LTCM, this minimum is $10m which has to be left with the fund for at least three years. Such funds do not guarantee a minimum profit, nor even that the investment will be returned. If the fund makes losses, so does the investor. But as hedge fund managers tend to come from the elite of finance capital, all this takes place between people belonging to the same clubs and trust is the rule.

The specific feature of LTCM, which it shares with some but not all hedge funds, is to make a massive use of credit in order to turn small market changes into very large profits over a relatively long period of time. This is achieved by first buying derivatives - that is gambling certificates - then using these certificates as securities to borrow more money and buy more derivatives, and so on and so forth several times over. This way the stake of the bet can be considerably increased, as well as the gains if the gamble is successful. But of course, if the gamble is lost, the losses can be enormous.

So, to avoid catastrophes, financial specialists have invented methods to control the risks taken hour by hour. Mathematical models have been put together so that these risks can be estimated instantly using computers and action taken as required. LTCM prided itself for having on its board of directors two economists - Robert Merton and Myron Scholes - who received the Nobel prize for economics in 1997, precisely for such a mathematical model they had worked out in the 1970s.

In any case, whether it was thanks to the Scholes-Merton model or not, LTCM did achieve a considerable return for its investors, between 30% in 1994 and 50% in 1996, although 1997 was a bit paltry with "only" 17% - more than the average pay rise, though. But then even the best mathematical model in this field is, of necessity, limited, as there is no way to make it take into account the possibility of extreme situations - if it did, it would only be able to tell the fund managers to close shop immediately! When such an extreme situation arose, with the collapse of the ruble, this fancy mathematical model did not prevent LTCM from being caught wrong-footed. Not that LTCM had gambled on the ruble or any such risky asset; they were too smart for that. But they had gambled, among other things, on a very slow increase of German interest rates - the safest possible bet. And all of a sudden a massive flow of capital was rushing out of Russia seeking shelter in Germany. German interest rates went down by a small margin. For most gamblers, this was a small loss. But LTCM had multiplied its stakes by over a hundred times through credit. Its creditors became worried and steps were taken to get LTCM to give more solid securities or pay back what they owed. It was at that point that the American financial authorities stepped in with their rescue plan.

Why did they bother, for just one hedge fund, and not even one among the largest at that? One reason was the size of LTCM's stakes which were estimated at anything between $200bn and $400bn, for a total capital of $4bn. Had LTCM been forced to sell all their assets to cover their debts (a small part of their debts in fact) it would have created a big stir. All the more so as most of LTCM's gambles were on interest rates, state debt and state-guaranteed debt, in other words in areas which affected the whole monetary system directly.

But there was another, probably much more decisive reason for this rescue. Among the biggest customers and creditors of LTCM were more or less all the world's largest banks. The most committed were the big US banks such as Merrill Lynch to the tune of $1.4bn and JP Morgan with $1bn. Even the central bank of Italy had invested $250m in LTCM. All these big names of the banking system would have had to share the cost of a collapse - $400bn or whatever it was. This amounted to taking the risk of a generalised banking crisis. So all the banks concerned plus a few others were invited to have a whip round and raise enough money to provide LTCM with the securities they needed, and another crisis was avoided, this time at least.

Taming the speculative beast?

Since last September, there have been many calls for state regulation to stop the "unacceptable speculation" of hedge funds like LTCM.

Coming from the governments of Third World countries who want to protect their economies from the risks created by such leveraged speculation, this may be understandable. Although the motives of the Malaysian leader in taking such measures are probably more due to demagogy than to concern for the country's population. But coming from Western politicians, in particular from Blair and his cronies, there is a big dose of hypocrisy in such calls.

Indeed, if the LTCM affair showed anything, it is precisely that the line between the activities of "unacceptable speculators" like hedge funds and "respectable" banks is not as clearly drawn as it is claimed to be. A recent review published by business weekly The Economist noted that the methods used by the trading arms of the large banks are not different from that used by hedge funds. This article added that the total value of leveraged gambles made by the large banks was equivalent to that of hedge funds.

In fact, given the absence of close scrutiny on banking activities and the enormous possibilities for financial gambling created by deregulation, stopping this sort of risky business would imply cutting down considerably the flow of capital across the world - and the availability of capital to finance the debt of the rich countries. So that, regardless of the temporary patching up that may be done, such a drastic step will not be taken.

Besides the very idea that speculation can be in any way eradicated from the financial sphere is simply ludicrous. In that case, all trading in shares and most trading in currencies should be stopped, because their purpose is exclusively speculative! But this is not what today's capitalist moralists are suggesting. They want capital to be free and the needs of the capitalists to be taken care of. They simply won't admit that the price to pay for this market "freedom" is precisely the sort of "unacceptable speculation" that they claim to find so repulsive.

With all kinds of nuances this is more or less the attitude of the rich countries' governments. As far as they are concerned no constraints should be imposed on the capitalist class. When they take measures they are not directed against speculation or the speculators, but rather aimed at bailing them out.

Thus the Japanese government has just introduced the final leg of its financial deregulation programme in an orgy of celebrations hailing the wonders of "economic freedom". This will make the Japanese financial market the freest among those of the rich countries - in the capitalist sense, of course, meaning that the government will not interfere in any way in speculators' attempts to make profits. But almost at the same time the government announced a $500bn package aimed at sorting out once and for all the country's banking crisis - the equivalent of 10% of the country's total annual production of goods and services!

The largest part of this package will be used to nationalise and restructure failed banks and to help the others to write off their unrecoverable loans. This may be only one-third of the total owed to the banks. But it is an enormous bounty for a whole section of the Japanese capitalists, which will cut their losses or even allow them to avoid paying up even if they can. All this will be eventually paid for by the tax payer, and above all by working people. Already the Japanese government has announced that it intends to cut 20% of all public sector jobs, in the name of "national solidarity" as they say, to get the country out of the present crisis! But this national solidarity does not extend to imposing the slightest constraints on the capitalists themselves, even though they are the ones responsible for this crisis. This is what they mean by "economic freedom".

The IMF is another official body which pretends to regulate world finance. Its policy, however, is exactly the same as that of the Japanese government, and all those in the rich countries for that matter. In the last analysis, its rescue packages have no other function than to bail out the international banks and companies which might get trapped in a regional crisis. And even if not all speculators are directly bailed out, their creditors are, so that business can carry on as usual, somewhere else, where there is still something for them to grab. Ultimately the populations and no-one else will foot the bill. Either immediately because of the impact of the IMF-imposed readjustment programmes - in the form of drastic cuts in state expenditure, which, in the case of Indonesia for instance, means starvation for millions. Or later on, because these rescue packages are not free gifts - they have to be repaid - and the local bourgeoisie can be trusted to squeeze what is required out of the population.

Only one way out of the crisis

The general crisis of the capitalist system can have many different faces - whether it be the financial crisis in South East Asia, the Japanese banking crisis or further turmoil on the world's stock market. It can also take a more devious, if less brutal form, like it does at the present time in Britain.

For the wave of factory closures and job cuts which is taking place today is also another aspect of the same crisis. Not that the British economy itself is in crisis, not as far as we can see for the time being in any case. But this wave of closures is just the response of the British capitalist class to the general context in which it operates - a context in which there is a constant drift of capital away from the productive sphere towards the financial sphere.

The grip of capital finance over the world economy means that share prices are now much more important than production figures. Banks do not lend money to companies on the basis of the quality of their products, nor even on the level of their sales figures - but on the basis of their future value on the market, in case they cannot pay back.

At the same time, finance capital has invaded even the smallest companies. If you have difficulties finding a job, there is one line of work that seems to need a constant flow of applicants, judging for the ads in the papers - it is called "risk management". Any company worth its salt must have a "risk manager" these days, that is someone who can make some quick money out of whatever cash the company has in hand at any point of time by using financial gambling. In the larger companies, whether in the car industry or among the privatised utilities, entire departments have been set up to do just this. And if there is enough cash in the box - usually the product of substantial job cuts - managers will look for some lesser company to buy. Not only will this be an opportunity for more savings - through another round of job cuts - but it will boost share prices, and their salaries into the bargain.

How can an economy be expected to work and produce what is required by the needs of the population when it is driven by such motives? But this is the logic of the market - or rather its irrationality.

Of course this is not what we are told. On the radio, every morning, business experts tell us things like - "the market reacted sharply to the latest US trade figures driving the Dow Jones down 200 points". As if the market was a thinking person, with its own judgment and will! As if behind this fiction of the market were not a handful of fund managers and bank directors competing with one another for a bigger slice of profits! When politicians give us endless lectures about what they call the "business cycle", it is always to tell working people that if they are not happy with their lot, they should blame economic forces, but not the politicians nor the bosses. But they forget to mention that driving their "business cycle" there is a "profit wheel" which always turns in the same direction - to benefit the bosses. All this pseudo-science which floods the media is a con. But the fact that the banks themselves are gullible enough to be conned by LTCM and its mathematical magic wand, does not mean that the working class has to be that gullible.

Ultimately the problems posed by the capitalist crisis as a whole are not fundamentally different to those facing workers made redundant in Newcastle or Birmingham. There is no shortage of wealth and resources in society, but the way they are used takes no account of the interests of the majority. Whether the issue is to force the bosses of a British company to put their accounts under the scrutiny of their workers or to force the bourgeoisie of Indonesia to pay the cost of the crisis instead of imposing it on the poor masses, it comes down to one and the same objective - that of challenging the right of the bourgeoisie to impose the rule of profit on the majority of the population. And challenging this right can only mean challenging the private ownership of the means of production by the capitalists. It can only mean raising the need for a communist organisation on a world scale.

We are faced today with the prospect of the capitalist system imploding more and more under the weight of its contradictions. No section of the world population will be spared. Some will be confronted with repeated catastrophes like in South East Asia. And those who happen to escape, will be faced with the on-going attempts of their exploiters and their politicians to screw always more surplus-value out of a constantly shrinking productive workforce. Getting rid of all this mess once and for all will be much less costly.