Global Policy Forum

Treasury Secretary Robert Rubin, who has served as a staunch advocate of the U.S. financial services community since leaving the helm of Wall Street giant Goldman Sachs and Co. in 1995, after three decades as an investment banker.

Rubin's deputy, former Harvard and World Bank economist Lawrence Summers who, with his boss, formed ''the dynamic duo of free capital''. The pair's offices, on the third floor of the U.S. Treasury here, has become ''the command centre for free markets.''

President Bill Clinton, whose desire to make a mark on the world has been driven by an uncritical acceptance of Wall Street's wishes. These were introduced to Clinton in 1991, when as a presidential candidate he was wined, dined and grilled by Wall Street Democrats. That was when the young governor from Arkansas first met Rubin, the man he would later anoint as Treasury secretary, the U.S. equivalent of finance minister. Clinton and Rubin, building on the economic liberalisation efforts of the Ronald Reagan and George Bush administrations, ''took the American passion for free trade and carried it further to press for freer movement of capital,'' according to the New York Times. ''Along the way they pushed harder to win opportunities for American banks, brokerages and insurance companies.'' For example, Washington lured Seoul with ''an attractive bait: if Korea gave in, it would be allowed to join the Organisation for Economic Cooperation and Development'' (OECD), the rich nations' club.

As a senior organisation official recalled: ''To enter the OECD, the Koreans agreed to liberalise faster than they had originally planned. They were concerned that if they went too fast, a number of their financial institutions would be unable to adapt.'' But the U.S. Treasury sidestepped those concerns as well as its own internal dissenters, and kept up its pressure, as reflected in an internal memo dated June 20, 1996. ''For all Washington's insistence that it emphasised building financial oversight,'' the Times reported, ''nowhere in the memo's three pages is there a hint that South Korea should improve its bank regulation or legal institutions, or take similar steps. Rather, the goal is clearly to use the OECD as a way of prying open Korean markets - in part to win business for American banks and brokerages.''

Between 1970 and 1997, spending by investors in industrialised countries on overseas stocks increased 197-fold as they spanned the world for the highest - and often the quickest - returns. Their confidence in Third World investing - all but five percent of it channeled to only a dozen countries - stemmed from a little wordplay at the International Finance Corporation (IFC), the World Bank's private-sector affiliate, which in the mid-1980s coined the more welcoming phrase 'emerging markets'.

The U.S.-designed Mexican bailout of 1995, further assured them that Washington considered some countries ''too strategically important to be allowed to fail.'' To be sure, many governments welcomed the U.S. moves and their bankers and investors ''speculated wildly on stocks and real estate and thus built up catastrophic bubble economies. But it was American officials who pushed for the speculation,'' according to the Times. ''And it was American bankers and money managers who poured billions of dollars into those emerging markets.'' They also made astronomical bets on foreign exchange markets and, facing losses, quickly pulled out - with devastating effect.

Thai central bank officials in 1997 wrote to their U.S. and German counterparts to warn of the impending crisis. They were heartened when Hans Tietmeyer, president of Germany's central bank, replied in person demanding to know which German banks were culprits. But the U.S. response, from one of Rubin's underlings, ''blandly acknowledged that 'large financial firms' can disrupt markets of countries like Thailand but added that these matters were best left to the markets,'' the newspaper reported.

When disaster struck, U.S. officials insisted that Asian governments - and now Brazil's - make difficult budget cuts, let ailing firms fail and raise interest rates, even at the risk of all-out recession, in hopes of appeasing international investors. By the time Indonesia and South Korea followed Thailand into the abyss, Washington was overseeing international rescue packages assembled by the International Monetary Fund (IMF) and quashing alternative proposals put forth by Japan and others.

Official bailouts so far have amounted to some 175 billion dollars, with the costs borne by taxpayers in the stricken countries themselves. ''South Koreans lost their businesses and in some cases were even driven to suicide,'' said the Times. ''But foreign banks - among them Citibank, J.P. Morgan, Chase Manhattan, BankAmerica and Bankers Trust - were rewarded with sharply higher interest rates.''

Washington held its line when dealing with troubles abroad but in September, when the crisis seemed as if it might strike the United States, the administration had a change of heart, said the Times. ''President Clinton went into overdrive...welcoming three interest rate cuts by the Federal Reserve, pressing Europe and others to cut rates as well, and finally getting money out of Congress for the International Monetary Fund,'' the Times said.''The Federal Reserve (or U.S. central bank) even coordinated the rescue of Long-Term Capital Management, a hedge fund backed by wealthy investors.''

That apparent hypocrisy has rankled many, adding to what the newspaper called ''a growing backlash against what some nations regard as an American model of laissez-faire capitalism, which rescues Connecticut hedge funds but sacrifices Indonesian children.'' The past 20 months have convinced officials here to concede that countries might need to liberalise at their own pace but Washington stands firm that the goal itself remains non- negotiable.

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