Feb 10, 1998

FINANCE: NEEDS AN INTERNATIONAL WATCHDOG ALA WTO

 

Caracas, Feb 7 (IPS/Estrella Gutierrez) -- The crisis sweeping East Asia has highlighted the need for a global regime to oversee and regulate capital flows, which already exists in trade, top world economic authorities said here Saturday at the inauguration of a meeting of the Group of 24 (G-24) developing nations.  

Managing director of the International Monetary Fund (IMF) Michel Camdessus and the secretary-general of the UN Conference for Trade and Development (UNCTAD), Rubens Ricupero, were among the keynote speakers at the gathering of ministers and central bank presidents.  

The need to monitor and regulate financial operations and adopt preventive mechanisms to ward off future crises was one of the key propositions to come out of the opening session of the three-day meeting.

Ricupero stated the case most clearly. He pointed out that in spite of the extensive integration of the world's financial markets, there was no financial counterpart to the World Trade Organisation (WTO), which regulates and oversees trade in goods and services.  

Existing accords focus on disciplining debtors, while no one regulates creditors, and measures are designed to manage crises rather than prevent them, he criticised. Furthermore, he added, such efforts hurt the standards of living and levels of development in the countries in question.  

In a message read by a representative, UN Secretary-General Kofi Annan said the burden of the Asian crisis, like that of earlier crises, was unequally distributed, and the prosperity of the people was eroded due to the absence of a strong financial system. 

Camdessus, along with Ricupero and the president of Venezuela's Central Bank and the G-24, Antonio Casas, stressed that the private sector must participate in overcoming such crises, and that new rules and more funds were required to shore up the global financial system.  

Casas expressed his concern that legislatures of industrialised nations - the US Congress in particular - were holding up the contributions needed to replenish IMF funds, which would leave the system vulnerable in the face of the financial crisis, with serious consequences for all.  

Ricupero said the situation in Asia has confirmed the existence of "a systemic crisis" in the global financial structure, after the crisis which swept Latin America in the 1980s and the 1994/95 Mexican debacle.

The head of UNCTAD said the IMF should be given new functions, which must go beyond proposals to boost the liberalisation of capital flows.

"A global regime is needed" to "govern the economic agents of financial markets," he maintained.

Ricupero also underlined the gravity of the first crisis to emerge in the South but whose shock waves have been felt throughout the industrialised world, and which has brought down the prices of primary materials and affected markets as far away as Brazil and Chile.  

The big boost given the global economy this decade came from Southeast Asia, he remarked, the very region sunk in crisis today. Nearly 50% of all economic growth occurred in those countries, which along with the United States have been the engines of growth in the 1990s.  

Thus the magnitude and duration of the downturn in the region will have global ramifications, he pointed out, while stressing the crucial need to keep the world economy from succumbing to a deep and long-drawn-out recession such as that which hit Latin America in the 1980s.  

Ricupero agreed with Camdessus, Casas and other speakers that creditors should contribute to a solution by restructuring debts and linking payments to future exports, rather than with new loans.  

He warned of the barriers faced by exports from Asian countries, which meant balance in that region was being regained by drastic cuts in imports.  

The UNCTAD head cited the example of Indonesia, whose currency has depreciated 80%, but whose business community has been unable to export due to tough restrictions in terms of credit and insurance.  

South Korea and Thailand, meanwhile, have achieved a surplus in their balance of trade, but based on - in the case of Thailand - a nearly 30% reduction in imports and less than one percent rise in exports.

The biggest threat to a fast and balanced recovery from the crisis is the strong protectionist reaction seen in trade, said Ricupero, due to fears of a growth in southeast Asian exports - after that region has been a major importer of goods from a large number of countries.  

He added that before the crisis broke out, Europe planned to show a $100 billion surplus in its trade balance this year, and Japan a $98 billion surplus.  

Not only will those objectives not be met, but Europe and Japan cannot be expected to give a big boost to trade, said the official, due to the major efforts going into the launching of the single European currency, the Euro, and the impact of the crisis on Japan.  

China, the world's emerging fourth power - after the United States, Europe and Japan - will also be unable to make a significant contribution, in spite of measures adopted to curb sales and increase imports.

The result, according to Ricupero, will be that the United States will be the giant solitary engine of the world economy and the source of massive demand for imports, but at the cost of a deficit which already stood at $150 billion in 1997, and is expected to climb to $200 billion this year and $250 billion in 1999.  

But that would occur at the cost of a slowdown of its own economy, internal consensus for which will be difficult to achieve in a year of legislative elections and more so, after Congress has already sent a clear protectionist signal by rejecting President Bill Clinton's bid for "fast track" negotiating authority prior to the crisis.

Even if all these hurdles in the sphere of the so-called real economy were overcome, however, Ricupero, Camdessus and Casas agreed that nothing would be gained without an increase in information and transparency, and above all without regulation of international financial movements.  

Camdessus said that although this weekend's meeting in Caracas would not give rise to clear mandates on that question, it would signal the urgent need for reinforcement of the financial system and supervision of capital flows.