Issue 221 of SOCIALIST REVIEW Published July 1998 Copyright Socialist Review

FEATURE ARTICLE: World crisis: wars and revolutions

Lands of the setting sun

Clare Fermont

The crisis in Asia just won't go away. In Indonesia the dramatic overthrow of the dictator Suharto in May has inspired further struggle and the economy continues to disintegrate. Japan, the world's second largest economy, has slumped into recession. In China, Thailand, South Korea, Malaysia and Hong Kong every day seems to bring more bad economic news.

The installation of Suharto's crony JB Habibie as Indonesia's new president has neither pacified the people nor stabilised the economy. Each 'concession' granted by Habibie to appease popular anger, such as the release of political prisoners, generates more activity, not less.

In early June, after Habibie lifted the ban on independent trade unions, workers went on strike in 50 factories in Surabaya and staged huge and violent protests in the streets. They were demanding up to 50 percent wage increases to keep up with spiralling inflation. Thousands more workers from electronic and machinery factories near Jakarta demonstrated to stop job losses. A demonstration of staff at the national airline, Garuda, demanded cancellation of contracts linked to the Suharto family. In the central Java town of Tegal hundreds of people rioted, stoning symbols of the ruling class. The parliament in Jakarta once again became the focus of student protests, with around 5,000 rallying outside to call for more reforms.

In occupied East Timor tens of thousands of people have attended meetings to demand independence. In Jakarta, a large demonstration on 12 June calling for East Timorese independence was broken up by police. This was the first display of force by the security forces since the May uprising and showed that the state is still the same beast that terrorised the nation for 32 years, albeit with a new face as president.

The government's refusal to attack the Suharto family's business empire and endemic corruption, and its inability to impose IMF directives without provoking further unrest means it cannot even begin to tackle the deepening economic crisis. The rupiah keeps falling. By 12 June it had crashed to 14,850 to the dollar, a 20 percent fall in a week. The much needed next tranche of the IMF's $43 billion bailout (equivalent to the Suharto family fortune) is weeks away, but anyway will be a drop in the ocean given the scale of debt and the collapse of industries. Unemployment is forecast to reach 15.5 million by the end of the year, about 17 percent of the workforce. Inflation has already reached 52 percent and is predicted to rise to 80 percent by December.

Such conditions will affect millions of Indonesians through job cuts, falls in real wages, rising prices and food shortages. It is unlikely that students and workers, bolstered by their recent success and newly won freedoms, will suffer in silence to allow Suharto's best mate to protect the interests of the rich.

Most worrying for the world's rulers and bankers is the situation in Japan, whose $4 trillion economy is one and a half times the size of all its Asian neighbours put together. The big fear is that any further economic deterioration in Japan will cause chaos in the 'Tiger' economies and could well spark a worldwide slump.

For several years output in Japan has stagnated and demand has failed to absorb capacity. In the past year its stock market has lost a quarter of its value. Now the economy is officially in recession. A Japanese ministry of finance survey reported in June that revenues of Japanese corporations had their biggest fall in the first quarter of 1998 since the survey began 40 years ago. Pre-tax profits also tumbled 25 percent in the same period. Increasing levels of bankruptcies are contributing to rising unemployment, which has now topped 4 percent. Despite huge tax cuts consumer spending and investment keep falling. And behind all these figures are the social consequences: increasing poverty for the millions of Japanese people who could survive on the margins through casual labour in the boom years but who are now cast aside with little welfare provision.

The situation in Japan is already exacerbating the regional crisis. The continuing decline in the value of the yen, which reached a seven year low in early June of Y140 to the dollar, threatens further currency devaluations in the region which would substantially increase the burden of debt for the weaker economies.

In turn, Japan's economy is being dragged down by the regional crises. Japanese trading companies, for example, have 6.8 billion worth of loans and credit guarantees in Indonesia, much of which will not be recovered. Japan is also effectively the banker for the 'Tiger' economies and faces the prospect of adding more dodgy debts to the billions of dollars worth of bad loans already notched up by the country's banks in the region.

Recent figures produced by the OECD, which show the fall in value of the region's stock markets and local currencies since June 1997, give some indication of the speed of economic collapse in Asia.

                Stock market    Currency
Indonesia        89 percent    82 percent
South Korea        75             36
Malaysia           73             38
Thailand           71             42
Philippines        57             34
Hong Kong          47              0
China's economy, which is becoming increasingly influential, is struggling too. Already suffering from chronic oversupply, deflation and plunging industrial profits, now exports and imports have begun to decline. Unemployment keeps on rising and the renminbi keeps on falling. In Hong Kong unemployment has hit a 14 year high as its economy slides into recession. Output fell in the first quarter and economists there predict the economy will shrink between 1 percent and 3 percent this year. In Thailand the economy is forecast to contract by 7 percent this year, and the government is struggling to meet IMF conditions imposed last year.

In Malaysia the economy contracted by 1.8 percent in the first quarter, unpaid loans are mounting and there is growing political tension. The prime minister of 17 years, Mahathir Mohamad, was recently warned by the leader of his ruling party's youth wing to end nepotism, cronyism and abuse of power, otherwise 'we may face the Indonesian situation, where the people demanded changes'.

The South Korean economy too is set to shrink, by 5 percent this year, and mass strikes have greeted government attempts to lay workers off. Even Australia is feeling the fallout. The Australian dollar has slumped to a 12 year low and exports to Asia have fallen by 17 percent, a serious development since Asia absorbs about 60 percent of total exports.

The world's rulers and financial institutions have no effective response to the unravelling crisis in Asia. Their normal panacea - austerity programmes attached to ever bigger loans - triggered the uprising in Indonesia and provoked mass strikes in South Korea. The perceived wisdom of the 1980s - that Marxism had been proved wrong by capitalism's ability to find new ways of flourishing - has been shattered. Marx showed clearly that ever deepening crises and ever shallower booms are inevitable as capitalism ages. He also showed that the way to end the instability was for the working class to come together, seize power and organise society on the basis of need, not profit.

The new Balkan war

Kevin Ovenden

Fighting in Kosovo claimed over 300 lives and created upwards of 60,000 refugees in June. It has raised the grim prospect of sliding into the third all out Balkan war since the breakup of Yugoslavia in the early 1990s.

The immediate cause of the fighting is a Serbian police and military offensive against the Kosovan independence movement. Only about 10 percent of Kosovo's population of 2 million are Serbs while almost 90 percent are Albanians.

Serbian president Slobodan Milosevic ordered his troops into Kosovo in March as he faced growing opposition in Kosovo and within the rump Federal Republic of Yugoslavia which he leads.

Milosevic's Yugoslavia comprises just two republics - Serbia and Montenegro. The election of Milo Djukanovic, who has garnered US support, as president of Montenegro last year left Milosevic feeling his power base was under pressure.

At the end of May Djukanovic's party won elections giving it full control of the Montenegrin government. Djukanovic in no way offers a programme of reforms to benefit workers, but his election has added to the instability of Milosevic's regime.

At the same time, Milosevic has faced growing opposition to Serbian rule in Kosovo. In 1989 he stripped the province of the autonomy it had been granted under the 1974 Yugoslav constitution. He used the Serb minority in Kosovo to whip up nationalism. Direct Serbian rule over Kosovo brought a wave of repression. It rapidly developed the worst human rights record in Europe.

The Albanian opposition, led by Ibrahim Rugova, set up its own parallel state structures and boycotted Milosevic's elections. Milosevic tried to poison Kosovan Serbs against their Albanian neighbours.

Throughout all this time western leaders politely listened to Rugova as he toured their capitals and then ignored him and the suffering in Kosovo. In 1993 then US president George Bush forced Rugova to cancel elections to his unofficial parliament.

The US finally got the war weary sides in Bosnia to agree a deal in 1995 through a combination of military strikes against Serb positions and bolstering Croat and Bosnian Muslim forces. The world was told the Dayton deal was about ending Serb aggression, but it studiously avoided any mention of Kosovo.

In the current crisis, western leaders oppose Milosevic's attack on Kosovo and even talk of military strikes against Serbia but they denounce with the same vigour the independence fighters of the Kosovan Liberation Army (KLA). US envoy to the Balkans, Robert Gelbard, echoed Milosevic in calling the KLA 'terrorists' just as Serbian paramilitaries poured into Kosovo. British defence secretary George Robertson calls independence for Kosovo 'an extremist position'.

The west wants to preserve the existing rotten carve up in the Balkans. That means maintaining Kosovo as an unwilling appendage of Serbia. An independent Kosovo would have far reaching consequences. It would open the door for other groups to declare independence in the Balkans, which are a patchwork of different nationalities.

There have been demonstrations in Albania and Macedonia against the Serbian assault on Kosovo. Sali Berisha, the pro-western ex-president of Albania who was ousted last year, hopes to use sympathy with the Kosovan Albanians to rebuild his power base in northern Albania. In any case Albania could be drawn into any full scale war in Kosovo.

The Albanian minority in Macedonia is officially 22 percent of the population of 2 million but probably much higher. Albanians in the Tetovo area of northern Macedonia briefly declared themselves independent after a plebiscite in 1992. The UN deployed 1,000 troops there to prevent a repetition.

The prospect of Macedonia breaking up could lead to a bloody scramble for control between Bulgaria, Greece, Albania, Turkey and the other Balkan states. Greece and Turkey have already nearly been to war twice in three years.

The Kosovan Albanians are fighting against systematic oppression. But, unfortunately, such a fight is not immune from being drawn into the kind of communal hatred we have witnessed in previous Balkan wars and which the wider conflicts described above would unleash. Most of the KLA's activity has been directed against police and army units. But there are also instances where it has attacked ordinary Kosovan Serbs.

The KLA is calling for western military intervention. But if the US reversed its policy the Kosovan Albanians could find themselves footsoldiers in the interests of a Great Power pursuing an alternative, equally bloody, Balkan carve up.

The Kosovan independence fight does not have to go down this road. But avoiding it means championing the rights of all national minorities and moving in a socialist direction. It means breaking with the major powers and the multinational corporations whose interests they defend.

Russia's grim figures

Pete Glatter

'Indonesia with 10,000 nuclear warheads' (US official's description of worst case scenario in Russia). Capital took flight from Russia on 15 May. 'Unsettled by the upheavals in Indonesia, a looming current account deficit and the inexperience of a newly appointed government,' explained the Economist, 'investors lighted on the Russian rouble as the currency at next greatest risk of collapse.' By 27 May a $2.5 billion oil privatisation had collapsed, the stock market was down 50 percent on the beginning of the year and interest rates had soared to 150 percent.

The central bank had spent $1.5 billion in a fortnight to stave off devaluation. Russia's reserves were down to a dangerously low $14 billion. On 29 May a leading international credit rating agency placed Russia on the same risk level as Lebanon (just below Jamaica). A slight recovery in the following week saw interest rates cut to a mere 60 percent. But shares fell by 16.6 percent in the week ending 13 June due to continuing turmoil in Asia and lack of concrete help from the industrialised countries and the IMF.

In Asia the crash came after a prolonged boom. The crash in Russia comes after an unprecedented slump. Between 1989 and 1997 the Russian economy, measured in terms of gross domestic product (GDP), shrank by 57 percent. Losses in national wealth between 1991 and 1997 are estimated at $1.2 trillion, three times greater than during the Second World War. With manufacturing industry devastated, Russia's export earnings are dependent on oil, gas and metals. But prices of such commodities plunged from 20 to 40 percent between December 1997 and March 1998 due to falls in demand.

The disaster of Russia's gamble on the market goes on. But the government's options are narrowing. High interest rates may stem capital flight and protect the rouble. But they squeeze a debt ridden banking system. According to the economics minister, it will take the best part of a year to get interest rates back down to 25 percent, a level at which a quarter of public spending goes on servicing government debt. So far the government has failed to sell adequate bonds to finance itself. And repayments on existing debts start to mount in three years time. Devaluation might sharpen the competitiveness of Russia's raw material exports. But Russia's dependence on manufactured imports means that devaluing the rouble could reignite a catastrophic inflation.

An IMF approved austerity plan includes a 3 percent increase in tax revenue and a 15 percent cut in public spending involving 230,000 public sector job cuts and an end to index linked pensions. The plan reeks of the arrogance of the Russian upper class. Russian enterprises already owe $16 billion in pension contributions and payment arrears rose by over 350 percent during April. Tax dodgers are estimated to have smuggled $25 billion out of Russia since 1991. Tax collected last year amounted to less than 11 percent of GDP. Yet big tax debtors like the giant gas monopoly Gazprom have not even been targeted.

On the other hand, miners on strike, mainly over $573 million in unpaid wages, were accused by a minister of living in houses 'fit for Hollywood stars'. The miners - joined by teachers, doctors and even scientists - have challenged the government's ability to implement cuts. Between 15 and 26 May they blockaded key railway lines. The railways lost $75 million. The government earmarked $88 million to settle the dispute. But as usual there is uncertainty about whether the money is actually getting through.

The miners, who face 50,000 job losses this year, became a focus for everyone sick of suffering for a corrupt, vicious and incompetent regime. Elections for three regional governorships went against the government as the crisis broke. Militancy has begun to stir in the crucial oil and gas industries. Not a promising start for a government only two months old with parliamentary elections due next year and a presidential election with no obvious candidate the year after that. The prospects for Russian capitalism look extraordinarily grim.

Nuclear fallout

Neil Rogall

India and Pakistan's nuclear tests in May now threaten a new nuclear arms race in one of the world's more politically unstable regions. Although it is clear that India has been pursuing the nuclear option for many years, it is the new right wing BJP led government that has triggered the current crisis. It was always obvious that the BJP government's bellicose nationalism would heighten tensions in the region as well as scapegoating India's Muslim minority. But conflicts within the BJP's multiparty coalition prompted the new crisis. The prime minister, Najpayee, launched the tests without informing the BJP's partners. Government ministers insisted that India's actions were a response to China providing Pakistan with nuclear know-how. For internal consumption the BJP hailed the tests as a defiance of imperialism and the US.

Despite international condemnation, the tests seemed to vindicate the BJP's strategy, at least among the Indian middle class. An opinion survey taken immediately after the tests in six metropolitan cities revealed a 91 percent approval rating.

This triumphant mood both reflects and hides the growing sense of desperation felt by India's elite. There is a widespread feeling that India, despite 50 years of independence, has not received the international respect and influence it deserves. Such frustration has fuelled a search for short cuts by India's ruling class.

The response to India's tests in Pakistan was predictable. Despite US pleas to Pakistan's government not to engage in tit-for-tat testing, its prime minister, Nawaz Sharif, was under intense internal pressure. The right wing Janaat-i-Islami organised street meetings across the country calling for immediate nuclear tests. Benazir Bhutto, leader of the main opposition PPP, ripped off her bangles at a public meeting, and declared they should be sent to the prime minister as he was 'a woman' who did not have the guts to stand up to India. As with the Indian tests, the Pakistani ones appeared to have widespread support. Nevertheless Sharif used the tests as an excuse to declare a 'state of emergency' and suspend democratic rights, preventing any protests.

Although there are doubts about the actual success of both sets of tests, they do create an extremely dangerous situation in the region. The two countries have fought three wars since 1947.

Pakistan is more likely to be damaged by sanctions than India. It has a foreign debt of $36 billion, and two thirds of its budget is devoted to debt servicing and defence expenditure. India, with its much larger population and industrial base, is much more likely to ride out the storm.

What of opposition? In Pakistan, under the cloak of a state of emergency, it is difficult to assess the situation. In India, although there appeared to be unanimous approval at first, with both the Congress Party and the former United Front coalition attempting to claim some of the credit, there are the beginnings of dissent. There have been demonstrations in most of the main cities, as well as anti-nuclear statements signed by some intellectuals and scientists. The two parliamentary Communist Parties have condemned the nuclear sabre rattling.

While much of the media initially acted as cheerleaders for the government, there have been exceptions. Kalpana Sharma, from the major English daily, the Hindu, has written, for example, 'The bomb will not feed starving babies. On the contrary, it will literally snatch the bread out of their mouths.' Even before the current hike in arms expenditure India was spending $10 billion annually on defence, twice as much as it spends on health, education and social services put together.

But the new arms race doesn't just threaten the lives of the poorest. India and Pakistan border each other. Any use of the bomb will destroy the lives of millions on both sides, irrespective of religion.

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