INTERNATIONAL BUSINESSES AND FOREIGN OPERATIONS

International Businesses and Foreign Operations



International Businesses and Foreign Operations

Introduction

The 1997 and 1998 Global financial crisis began in Thailand and then quickly spread to neighboring economies. The crisis began as a currency crisis when Bangkok unpegged the Thai baht from the U.S. dollar, setting off a series of currency devaluations and massive flights of capital. In the first six months, the value of the Indonesian rupiah was down by eighty percent, the Thai baht by more than fifty percent, the Korean won by nearly fifty percent, and the Malaysian ringgit by forty-five percent. Collectively, the economies most affected saw a drop in capital inflows of more than US$100 billion in the first year of the crisis. Unparalleled both in its magnitude and its scope, the Global financial crisis became a global crisis when it spread to Russian and Brazilian economies.

A Crisis of Governance

The significance of the Global financial crisis is multifaceted. Though the crisis is generally characterized as a financial crisis or economic crisis, what happened in 1997 and 1998 can also be seen as a crisis of governance at all major levels of politics: national, global, and regional. In particular, the Global financial crisis revealed the state to be most inadequate at performing its historical regulatory functions and unable to regulate the forces of globalization or the pressures from international actors. Although Malaysia's controls on short-term capital were relatively effective at stemming the crisis in Malaysia and attracted much attention for Prime Minister Mahathir bin Mohamed's ability to resist International Monetary Fund (IMF)-style reforms, most states' inability to resist IMF pressures and reforms drew attention to the loss of government control and general erosion of state authority. Most illustrative was the case of Indonesia, where the failures of the state helped to transform an economic crisis into a political one, resulting in the downfall of Haji Mohammad Suharto, who had dominated Indonesian politics for more than thirty years.

Debates about the causes of the financial crisis involved competing and often polarized interpretations between those who saw the roots of the crisis as domestic and those who saw the crisis as an international affair. The economic crisis focused much attention on the role of the developmental state in East Global development. Proponents of neoliberalism, who saw the crisis as homegrown, were quick to blame interventionist state practices, national governance arrangements, and crony capitalism for the crisis. Assistance from the IMF all came with conditions aimed at eliminating the close government-business relationships that had defined East Global development and replacing Global capitalism with what neoliberalists saw to be an apolitical and, thus, more efficient neoliberal model of development.

The early neoliberal triumphalist rhetoric, however, also gave way to a more profound reflection about neoliberal models of development. Perhaps most of all, the 1997-1998 financial crisis revealed the dangers of premature financial liberalization in the absence of established regulatory regimes, the inadequacy of exchange rate regimes, the problems with IMF prescriptions, and the general absence of social safety nets in ...