Rupee and the Hidden Hand

A few days after Egyptian President Mohamed Morsi, barely a year into his five-year term, was brought down by the combined power of street protests backed by the army, the long queues outside the petrol pumps, symptomatic of the last few months, disappeared magically. Similarly, other essential items were back on the shelves. Supporters of the discredited Morsi claimed that the economic crisis was aggravated by the ‘deep state’ and those opposed to the government of the Muslim Brotherhood.

Similarly, Turkish Prime Minister Recep Erdogan blamed the “interest” lobby for the Taksim Square/Gezi Park turmoil,  alleging that they  profit from a volatile stock market. Later, Turkish prosecutors held coup plotters involved in the ‘Ergenekon case’ responsible for destablizing a democratically elected government by subverting the economy.

These are just two recent examples in a larger body of evidence collected over the years to suggest that countries go through economic crisis not just for what they do, but many a time for what they don’t do. Sometimes, the economies are destablized by currency speculators, rating agencies and hedge funds for different reasons. Even healthy economies come apart when these financial predators set their sights on them. Many would view this argument as a conspiracy theory re-packaged as a faithful narration of facts, but the truth is that over the years many economies have spotted those that can cause harm to them and have taken firm steps.

In 1997, most of the countries of Southeast Asia, like Thailand, Indonesia, Malaysia, South Korea -- all Asian Tigers -- found their good fortune going up in smoke when their overleveraged real estate sector began to default. Their currencies were mauled by forex traders. Thai Baht, the  Malaysian ringgit et al, became worthless. Malaysian strongman Mahathir Muhammad saw in it a larger conspiracy of western capital to gain control over Asia’s booming industry. Mahathir blamed currency trader George Soros for the collapse of the Asian economy. He alleged that he invested in real estate and other sectors in the short term and quickly withdrew from these economies mysteriously. The Malaysian leader banned currency trade to save the ringgit.

It was only after the major currencies of Asia were put on free float and they devalued that the economies began to show revival. The revival meant many businesses were put on fire sale and were picked up by western companies. In South Korea, companies like Daewoo were forced to sell themselves cheap to American companies. In Thailand and Indonesia, the ownership profile of many companies changed. If these changes happen on their own due to changes in market conditions or technology, then it is understandable, but when economic variables are manipulated by bigger economies and their instruments then one wonders about the real objective.

Some years ago, an economist, Davison Buddhoo, resigned from the International Monetary Fund (IMF), citing falsification of data and statistical manipulation in foreign exchange rate and terms of trade to compel countries to invite the multi-lateral body’s intervention to impose conditionalities as it unpacked its stabilization programme. Most of the IMF prescriptions were anti-labour and anti-subsidy for the poor. Buddhoo was sent packing, but the issue on which he blew the whistle is still relevant.

In India, the economy has been floundering due to a host of factors. From a high of 9 per cent, it is now stuck at about 5 per cent. Under the global slowdown, this rate of growth is good. If it hadn’t been for largescale corruption scams, absence of regulation, indifferent environment laws, and the government’s insistence on providing food security, the economy would have chugged along at 7-8 per cent. The convergence of corporate houses with vested interests opposed to any wealth transfer to the poor is giving an impression that the economy has fallen into the abyss.

Some years ago, an economist, Davison Buddhoo, resigned from the International Monetary Fund (IMF), citing falsification of data and statistical manipulation in foreign exchange rate and terms of trade to compel countries to invite the multi-lateral body’s intervention to impose conditionalities as it unpacked its stabilization programme

The rupee’s rate against the dollar came down dramatically, but so did the value of so many other currencies of the emerging world. Although India’s economy has been on a float since 2007, it has been suggested that India may go under like the  Asian economies in 1997. What is being forgotten is that the circumstances in 2013 are different. India has foreign exchange reserves of $285 billion, unlike in 1991 when the then finance minister, Yashwant Sinha, had to mortgage our family gold to the Bank of England.

Clearly, a hidden hand is creating circumstances for fostering an environment in which Narendra Modi and his harebrained economic prescriptions sound credible to facilitate his rise in 2014. This government needs to order a probe to figure out who is making money in this diabolical enterprise. Indeed, the results of that probe would be fascinating.