SUNS  4291 Wednesday 30 September 1998


LATIN AMERICANS WANT FOCUS ON FINANCIAL CRISIS

Geneva, 29 Sep (Chakravarthi Raghavan) -- In a turn-around in perception of the 15-month old financial crisis that began in Asia and spread to Russia and now the Latin American region, the Latin American and Caribbean Group (Grulac) of countries Monday, called on UNCTAD to discuss the crisis and its effects on trade, commodity prices and the reforms needed in global financial architecture.

The Grulac statement came in the UNCTAD Commission on Trade in Goods and Services and Commodities -- whose main agenda items, identified some months ago, were questions about trade preferences for developing countries and the trade in services issues.

Part of the GRULAC complaint appeared to be over the process in UNCTAD, under which the developed countries, hold up consensus and force a narrowly-focused agenda for meetings of the UNCTAD bodies; but part was on wider issues.

In other comments, Mauritius for Africa, expressed the region's concern over inability of African countries to take full advantage of non-reciprocal preferential trade schemes. Their ability to use the
preferences were constrained by the introduction by the preference-giving countries of new criteria for graduation of beneficiaries, the phasing out of trade schemes or non-trade related conditionalities relating to social, environmental and humanitarian standards.

The African representative also complained that despite the binding commitments made by them in GATS, new investments had not come to these countries. And the trend towards formation of strategic alliances and mergers between major service providers gave rise to monopoly situations that may further exclude many African countries from the trade in these sectors.

For the Asian Group and China, India said the GSP and other non-reciprocal trade preferences continued to play an important role as tools for development. The need for preferential market access remained strong, especially in the light of economic slump in several dynamic developing countries as a result of the financial crisis. The Indian representative called for the strengthening of UNCTAD secretariat's analysis through quantified and statistically supported evidence.

Referring to the low utilization of the GSP and other non-reciprocal preferences, the Indian representative advocated technical cooperation activities to enhance awareness in preference-receiving countries, improving the GSP schemes by addressing long-standing problems, including extension of product coverage, improving preference margins in areas where peak tariffs persist, and removal of tariff quota restrictions. There was need to pay special attention to the trade preferences of the LDCs, for whom improved market access alone was not sufficient without help to improve their supply capabilities.

The Grulac Coordinator, Amb. Carlos Perez del Castillo of Uruguay, told the Commission that while it was important to focus on trade preferences to expand market access for developing countries, and on identifying sectors of export interest to them including capacity building in services, these "are marginal" questions in relation to the financial crisis and its effects on world trade and economy.

At a time when the effectiveness of the monetary and financial system was in question, said Perez del Castillo, UNCTAD should be discussing these central questions and contribute to bringing about reforms in the Bretton Woods institutions and systems.

When the financial crisis broke last year -- beginning with the floating and devaluation of the Thai baht, but spreading quickly across Asia -- the US Treasury and the IMF and the western media, blamed the crisis on countries concerned, and their lack of regulations, governance and crony capitalism took the view that the crisis would not have much effect on world trade or world economy.

UNCTAD took a different view, and presented it at the Hong Kong meetings of the Fund/Bank governors and the policy-making interim and development committees, and subsequently in its public analysis of the Asian crisis and its likely global consequences.

But the efforts of the UNCTAD Secretary-General and the secretariat at that time to hold discussions, were opposed by the US and industrial nations. Some of the crisis-hit Asean countries who had embraced the IMF policies became ambivalent. While the Africans were concerned that
focus on the crisis would detract from their problems, the Latin American region too was cool to the idea, believing that the crisis would soon pass and dwelling too much on it might affect foreign
capital flows to their own region.

Even till early this summer, many governments and economists in the Latin American region continued to project an optimistic view of the their economies -- GDP growth, trade and capital flows, including FDI and portfolio flows, on which they were depending to meet current account deficits and stabilizing currencies.

But when the financial storm hit Russia -- and despite its relatively low weight in the world economy and world trade -- market perceptions changed about 'emerging markets' as a whole, there was a "flight to quality" by investors, and speculators turned to the Latin region for "easy pickings", hitting currency and stock markets, the Latin American countries began to see the crisis enveloping them.

The head of ECLAC, the UN regional economic commission, called on the G-7 to act on the financial and monetary crisis, and insisted that multilateral investment rules, capital account convertibility and other such (neo-liberal proposals) as having a low priority and needing to be
looked at anew.

Latin American and Caribbean nations "believe it crucial at this time, when the effectiveness of the multilateral financial system is being called into question, for UNCTAD to be present," the GRULAC statement said at the UNCTAD Commission.

The UNCTAD Commission on Trade in Goods, Services and Commodities, Perez del Castillo argued, has been losing its clout and credibility by focusing on issues and aspects "that are marginal if we look at them against today's major trade-related problems, which a forum like UNCTAD cannot ignore."

UNCTAD's Commission should be discussing the financial crisis directly or indirectly affecting all countries worldwide, hurting their chances of growth and development, Perez del Castillo maintained. The reforms of the Bretton Woods institutions -- the World Bank and International
Monetary Fund -  and the interdependence between financial and trade issues, "which requires urgent attention, does not even figure in this week's debates" in the UNCTAD commission.

In particular, it is the commission's duty to analyze the effects of the crisis on the flows and reorientation of global trade, the consequences for the level of competitiveness among regions and
countries and general macroeconomic equilibria.

A second issue of importance was in respect of commodities, whose prices in 1998 had reached their lowest levels in 20 years. Discussion of these commodity issues was largely absent in international discourse and there were now less sources of strategic information on commodities
than was available a few years ago.

There was the need to analyze the effects of the commodity price falls on the export earnings of developing countries, and the issues of processing, marketing and distribution that UNCTAD used to address in the 1970s was now largely absent.

A third cluster of issues that need to be addressed are those relating to the strengthening of the trend towards transnational corporate mergers and acquisitions in all strategic economic sectors, with a major effect on market structures, and establishment of monopolies and oligopolies; international price formation and competition; design of trade policy; production, marketing and transport systems; physical location of production facilities of large corporations; the scope of
multilateral trade negotiations and capacity of developing countries to formulate national policies.

All these were negating the development efforts undertaken by the Latin American region since the 1990s. The region, one of the engines of global economic growth in the past few years, "is currently upset, infected and destabilised by measures and actions beyond our control."

Most Latin American and Caribbean nations have major trade deficits that have had a significant influence on the expansion of global trade, said Perez del Castillo. Those imbalances will be exacerbated as a result of the current turmoil, but that is not being discussed or analyzed by any forum, he stressed.

UNCTAD and the Commission on Trade in Goods, Services and Commodities are the best place for a collective, calm evaluation of the situation, he said, and lamented the omission of commodities from the commission's agenda. Commodities remained the main foreign exchange earner of
developing countries, and the growth of the latter's economies is inextricably linked to the strengthening, expansion, diversification and modernisation of that sector.

Commodity prices crashed this year to the lowest levels in two decades, which meant the loss of tens of billions of dollars in export revenues for developing nations. GRULAC declared that it would have liked an analysis by the UNCTAD Secretariat on how deeply the drop in prices had affected economies.

Perez del Castillo said the group also hoped for an UNCTAD study on the capacity of developing countries "to absorb the various manifestations of the financial crisis coming from different parts of the world."