Month: January 1998

Circling in for the Kill

As the dust settles over southeast Asia, it’s become clear that the financial crisis was not caused simply by a currency crisis, but by deregulated banks, expensive real estate speculations, globe-trotting investors looking for the highest rate of return, and governmental nepotism and influence-peddling on a wide scale. Now the International Monetary Fund (IMF) and the World Bank are stepping in to divide up the spoils and parcel them out to the highest bidders.

In a prior issue of Eat the State! (see “The Boom/Bust Cycle,” vol. 2, no. 10, 11/11/97) we talked about debt, wage stagnation, loan defaults, and the onset of the Asian financial crisis. Since then, things have gotten worse for people living in the countries immediately effected by the crisis–Thailand, Japan, Malaysia, Indonesia, South Korea, and Hong Kong. As each country’s currency has dropped in value, basic necessities have become more expensive to buy: food, clothing, fuel, medicine, etc. Wages, however, have fallen dramatically, because workers are being paid in their devalued local currencies. This is a boon for foreign businesses (like Nike) who can now get the same number of workers for much less money in U.S. dollars. These workers, however, still need to eat, and in places like Jakarta, Indonesia, the cost of most food items has increased 50–75% in the last two months. And many of the failing banks in Asia have either closed their doors, shortened their hours, or have frozen their assets, leaving depositors unable to access their savings accounts.

The IMF, World Bank, and western banks have stepped in with a bailout plan that will only make the crisis worse, and is deliberately geared toward hooking Asian governments into an increasing debt trap, similar to the credit card scams we discussed in the January 6 issue of ETS! The first part of the bailout plan involves getting western banks (i.e., BankAmerica, JP Morgan, Chase Manhattan, etc.) to extend the due dates for short-term loan payments (i.e., turning those short-term, high-interest loans into longer-term, high- interest loans) to give the Asian banks more time to raise money. Of course, in the meantime, those outstanding loans will continue to rack up more and more interest for western banks, thereby increasing instead of decreasing the debt burden for Asian banks.

The second part of the plan is an elaborate scam to shift the debt from failed commercial banks to the governments of Asian countries, thereby “nationalizing” the debt burden. For instance, JP Morgan has proposed that the South Korean government convert $15 billion in commercial-bank debt into government bonds. This will remove that debt from the books of commercial, private banks and make those banks “profitable” enterprises that can be purchased by western financial institutions at rock-bottom prices. Meanwhile, in Indonesia, the World Bank is forcing the government to sell off state-owned property, including its nationalized banks, oil companies, and utilities. But first the Indonesian government must make these entities into efficient, “marketable” properties by firing a large number of state employees, removing the debts from their books by turning them into direct government debts, and passing laws that allow foreigners and foreign companies to buy property. In Thailand, where real estate prices have plummeted, a large number of half-empty shopping malls, office complexes, and residential buildings are now up for sale for pennies on the dollar, while the IMF is forcing the new Thai government to “liberalize” its laws on foreign ownership of property. American and European developers, banks, and multinational corporations are poised to swoop down on southeast Asian properties like a group of vultures circling a fresh carcass.

Once southeast Asian governments take on this enormous debt load, they will be forced to implement IMF/World Bank austerity measures in order to meet their loan payments to western banks. This will include drastic cuts in social services that make any U.S. government “balanced budget” package look tame by comparison. For example, the new South Korean President Kim Dae Jung, formerly a supporter of organized labor, now supports wide-scale layoffs and privatizations. As utilities and state-owned oil and gas companies become deregulated and privatized, energy costs will rise and environmental controls will fall by the wayside. Government-funded retirement benefits will be cut, money for healthcare will dry up, and public education– already woefully underfunded in most of southeast Asia–will disappear. A growing class of unemployed, landless people, and the environmental devastation that comes with overdevelopment (remember the choking clouds of smoke over Indonesia this summer during the dry season?), will turn paradise into an impoverished wasteland.

Government repression will also increase as workers strike for higher wages, students demand lower-cost education, and the poor demand reforms. Human rights violations will increase–just they’ve increased in Mexico as a result of the 1994 $50 billion IMF/World Bank/U.S. bailout, which devastated the Mexican economy. We need only look toward Chiapas, Mexico, to see the political future of southeast Asia. While rich, western investors crack open champagne bottles to celebrate the acquisition of cheap Asian companies and the bailout that saved them from losing their shirts, indigenous people in Asia will probably be collecting old rifles, filling bullet casings, and tying scarves over their faces to exercise their last option for survival against the violence of the global marketplace.

In the meantime, there’s a movement afoot here in the U.S. to break apart one of the institutions directly responsible for much of the misery in debt-laden countries: the International Monetary Fund. This year, President Clinton is gearing up to present a bill to give the IMF $18 billion in funding, which will allow it to continue its destructive policies. He may present it to Congress as early as February, and will probably try to sneak it through as a rider attached to another, unrelated bill. To find out more about the struggle to de-fund the IMF, contact Fifty Years Is Enough at wb50years@igc.apc.org or Global Exchange at 2017 Mission Street, Room 303, San Francisco, CA 94110, (415) 255-7296.

 

Credit Card Scam

Fewer people than ever before are diving into the annual, end-of-the-year shopping binge. Retailers have reported unusually low holiday sales for the third year in a row. There are two reasons for this: first, national credit card debt has doubled since 1995, and second, much of that debt has served to buy necessities, not the gifts or luxury items that retailers expect to sell during the holidays. The debt trap is becoming as real for middle and lower class Americans as it is for any third world country–and it’s getting worse all the time.

Americans filed for bankruptcy in record numbers in 1997: 1.3 million total personal filings, up 47% from the previous year, and up 70% since 1994. People are defaulting on their credit card debt, personal lines of credit, and mortgages in record numbers, losing their homes and possessions in the process, losing their ability to hold or find a steady job, and ruining their long-term credit histories. This is the sordid underside of the “economic boom,” and it’s invisible to newspaper reporters and TV camera crews.

For the last decade, wages have stagnated–meaning that most workers have received either no pay raises or only minute increases that haven’t kept pace with rising inflation. The costs of basic necessities are rising beyond our means to pay for them, while companies are contributing to their profits by cutting back on free or low-cost employee benefits: health insurance, retirement plans, dental care benefits, vacation pay, sick leave. Furthermore, our so-called economic boom has been the product of “increased productivity” in the workplace–translated into real terms, this means companies are getting more work out of fewer employees, and paying them less for it. By holding down the cost of labor and benefits (the single largest expense for most companies), corporations increase their profits and are able to pay higher dividends to their stockholders, thereby funneling wealth to the rich and leaving the rest of us squeezed between a rock and a hard place. It’s not surprising that most Americans are using their credit cards to pay for clothing, food, transportation expenses, medical bills, childcare costs, etc.

This cycle of oversupply and underconsumption–where companies produce more and more goods and services, but their workers can’t afford to buy these things–can’t last forever. Yet banks are doing their best to prop up the system by extending credit to as many people as possible, and by trapping them into an endless cycle of deepening debt.

The largest credit card companies are “monoline” banks–institutions that exist only to issue credit cards and collect interest and fees from customers. They have no bank branches, no depositors, no tellers, and provide no other services. Such banks hook new customers by sending out massive mailings offering a new credit card with a low annual interest rate for a limited period of time, which eventually increases dramatically– often to 20% or more. In addition, they charge a whole range of service fees and other finance charges which are often not identified in detail on monthly statements. Customers’ monthly interest payments and service fees are what keep the monoline banks afloat and cover all their expenses; however, to show consistent growth, these banks need to draw in a steady stream of new customers every month.

To entice new customers, monoline banks are relaxing their standards for issuing credit cards. As of May 1997, one quarter of all families in the U.S. with annual incomes below $10,000 owned at least one credit card. Undoubtedly that figure is higher now. When banks turn to the portion of the populace least able to pay, you know that something is terribly wrong. In this case, large creditors like MBNA America, First USA, and Advanta, are scrambling to keep afloat and avoid bank defaults similar to those currently plaguing Japanese, Thai, and South Korean banks and credit houses.

While the International Monetary Fund and the World Bank eagerly jump in to bail out banks when they fail, there’s no corresponding help for you and me when we can’t pay off our credit cards. Nevertheless, there are some steps we can take to get out of debt without destroying our credit history or losing most of our possessions.

First of all, we need to collectively push for wage increases and full benefits from our employers. For most of us, that will mean organizing our own unions, setting up a workers’ collective, fighting for increases in the minimum wage, or for laws that require employers to provide basic benefits to workers. We all need to support an international movement for increased wages, benefits, safety laws, and workers rights. This is, of course, a long-term solution.

In the short term, there are practical things you can do to scale back your own debt. First of all, stop buying things on credit and restructure your existing debt. Take all of your credit cards out of your purse or wallet and figure out which one charges the lowest rate of interest. Put that card in a drawer and save it for emergencies. Now transfer the outstanding balances from all of the other cards to the card with the next lowest rate and put that card in the drawer, too. Cut up all of your remaining cards and call the 800 customer service numbers printed on each billing statement to close out those accounts.

When the statement for your remaining two cards arrive in the mail, calculate your monthly payments as follows: add the interest (sometimes listed as “finance charges”) to the amount listed as “minimum payment due.” This way you will always be paying off your interest for that month, and your minimum payment will always pay off some of the principal (the money you originally borrowed). Now, if the total of those two numbers is not too high, add as much extra into the payment as you can manage: $5, $10, $50, whatever is reasonable. The more extra you pay on the principal, the faster you’ll pay off the loan, and the less interest you will pay next month. Never pay only the minimum amount. Credit card companies always suggest an insufficient payment so they can hook you deeper into debt and make you pay more interest. That’s how they make their profit.

If your interest payments are high, you should shop around for a card that offers a lower rate. Take advantage of mailings that offer low introductory rates, and transfer your balance to a new card (always cut up the old card and close out the old account afterwards). The month before the interest rate is due to increase, transfer your balance to another new card with a low rate, and cut up the old one. Rotating your debt takes a bit of work and attention, but you can save a lot of money. Don’t feel guilty about doing this–even at the lower rate, the credit card company still makes a generous profit from you for doing nothing more than sending you a monthly statement.

Finally, throw away those sexy mailings that say 0% interest (an outright lie), credit line up to $100,000 (another lie for most people), or 5.9% fixed APR (the worst lie of all). Unless you need to rotate your shrinking debt, you don’t need a new credit card. Credit card companies only woo you so shamelessly because they need you so desperately. Let them starve–they’ll only do the same for you … if you let them.

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