Washington, DC
The financial crisis now roaring through east Asia will have profound consequences for working people all over the world. Deep currency devaluations, in conjunction with austerity programs, will cut wages and purchasing power in South Korea, Indonesia, and Thailand. The United States will be pressured to act as importer-of-last-resort, absorbing cheap Asian goods while at the same time Asian markets for our exports dwindle.
In the aftermath of the crisis, the U.S. trade deficit is projected to grow by about $100 billion in 1998, resulting in a loss of approximately 1 million jobs (or potential jobs), most of them in the better-paying manufacturing sector.
Without fundamental changes in the structure of international financial markets and the institutions that regulate these markets, we can expect continued volatility and future crises of growing severity. The present moment of crisis is the time to press for necessary changes in the international financial system, particularly in the conditions imposed by the International Monetary Fund (IMF) in exchange for the "bailouts" it gives to countries that have exhausted all other sources of credit. The United States should condition further contributions to the IMF on fundamental changes in the IMF’s program.
The clout and leverage exercised by the IMF must serve a broader set of social and economic goals. Currently, the IMF defines its mission narrowly, as protecting the interests of international capital. The IMF requires debtor governments to raise interest rates, cut public spending, deregulate financial markets, and weaken labor laws to facilitate massive layoffs and deep wage cuts. These terms may solve some short-term credibility problems with foreign investors, but will necessarily exacerbate the tensions, inequality, and instability of the global economy. Such policies are short-sighted and must be fundamentally altered.
The United States, which is the single largest contributor to the IMF, must use every means at its disposal, both formal and informal, to change the way the IMF operates. The AFL-CIO will support members of Congress in efforts to assure that IMF programs reflect the following principles:
1. Commitment to and vigorous enforcement of international labor and human rights. Countries that receive IMF funds must commit themselves, in an enforceable way, to respect for internationally recognized worker rights. If necessary, this would involve modification of laws and practice to comply with ILO standards and human rights. These commitments must ensure that governments will protect workers’ rights, even during times of crisis. Strong and independent labor unions play a crucial and irreplaceable role in assuring that the benefits of economic expansion are equitably distributed.
2. Domestic economic growth and development, not austerity and export-led growth. The model that led to this crisis glorifies export expansion as the preferred development path. This model leads to destructive, low-road international competition and worker impoverishment and must be reversed. The United States, Europe, and Japan must work together to stimulate domestic demand in the developing economies and avert a dangerous tendency toward global deflation.
3. Political and economic democracy. Without a strong and vibrant civil society, there is no counterweight to crony capitalism and no accountability for governments.
4. Reduction in the volume of destabilizing capital flows. Policies to regulate short-term borrowing and to dampen speculative flows of capital must be implemented.
5. Stabilization of exchange rates at levels closer to their pre-crisis values. The excessive devaluations caused by the loss of confidence in the East Asian currencies should be reversed. This is essential to blunt the negative impact of the crisis on American workers.
6. Transparency and broader participation in determining IMF policy. The IMF must consult regularly with labor unions and other broad-based organizations, not just with business and financial institutions, in the development of structural adjustment programs and emergency loan packages. Program documents should be made publicly available. By recognizing that workers must be included in developing a response to economic crisis, the tripartite commission (including representatives of labor, business, and government) established in South Korea is a promising step.
7. Ensure that speculators pay their fair share. The banks, corporations, and individuals who profited from risky investments during good times must not be shielded from losses during downturns. As banks reschedule their debts, financial losses must fall on those who made poor decisions. Asian and American workers and taxpayers must not be asked to foot the bill for a party to which they were not even invited.
Even if we move toward reform of the international financial system, concrete steps must be taken to stop the destabilizing flood of cheapened imports which have already been unleashed by this crisis. Steel, autos, electronics, apparel, and other threatened industries face an immediate threat which requires specific actions to maintain import shares consistent with pre-crisis levels in order to protect the jobs of these workers.