SUNS  4291 Wednesday 30 September 1998


FINANCE: THIRD WORLD'S CHANCE TO RAISE ITS VOICE

Washington, Sep 28 (IPS/Abid Aslam) -- The 53rd annual meetings of the World Bank and International Monetary Fund (IMF) in Washington this week again provides an opportunity for finance ministers and central bank bosses to commune among the canapes and take stock of efforts to make the world safe for free-market capitalism.

This year, developing countries could - if they're willing and able - raise their voices in demanding that capitalism be made safe for the world.

"It's very difficult for developing countries to be difficult, except in a crisis," says Yilmaz Akyuz, chief economist at the U.N. Conference on Trade and Development (UNCTAD).

Following a year of extreme economic turbulence, however, even some officials here have lost their enthusiasm for the 'Washington consensus', or dominant vision of free markets, and the existing
'global financial architecture', or rules and institutions upon which the world economy is built.

Tens of millions have been thrown out of work and plunged into poverty in East Asian countries that until recently were hailed by the World Bank as miracles. (But not by UNCTAD, which long has warned of systemic weaknesses in global finance and the region's newer 'Tigers').

In Indonesia alone, families have lost, in the space of one year, more than 80% in value of their savings, turning back the poverty-reduction clock by three decades.

Asian markets have collapsed, taking with them commodity prices. These stand at 20-year lows, hurting countries as far afield as Latin America - even as that region suffers capital flight at the hands of panicked investors. Initially, those investors fled 'emerging markets' in search of 'quality' on Wall Street but they brought their jittery nerves with them, affecting even the 'bluest of the blue chip' stocks, including Coca Cola and other traditional safe havens.

Last week's 3.5-billion-dollar bailout of Long-Term Capital Management (LTCM) has only reinforced the view that U.S. financial markets and banks no longer are invulnerable. LTCM, a New York-based 'hedge fund', borrows billions of dollars from banks, other firms, and pension funds to place currency bets all over the world.

Yet, Washington - home of the neo-liberal 'consensus' and home base to the IMF, World Bank and other global financial architects - so far has seemed intent to blame the crisis on its victims. In the officially favoured version of events, financial turmoil struck Thailand in June 1997 and spread to neighbouring economies and beyond because these countries lacked strong, well-regulated, and 'transparent' financial systems.

In this view, espoused by senior U.S. Treasury and IMF officials and echoed by leading think-tanks here, the opening of capital markets envisioned in the 'consensus' might need to be pursued more gradually. This would give financial architects time to reinforce the global system's institutional foundations - rooting out corruption, making governments and local firms 'transparent' to international investors, and ensuring that financial players hold prudent amounts of capital in
reserve for a stormy day.

Even analysts close to the establishment view those proposals as far less than new architecture. Former Federal Reserve Chairman Paul Volcker recently dismissed them as "interior redecorating." Erik Peterson, senior vice president at the Centre for Strategic and International Studies here, says they are "more like house cleaning."

Washington could look to the South for ideas on more fundamental reform, says Jeffrey Sachs, director of the Harvard Institute for International Development.

"A developing country voice is generally dismissed in the world," says Sachs, himself criticised in the past for making heavy-handed policy prescriptions. "It is generally viewed as not credible. But a lot of what developing countries have been saying is that the current strategy is not complete, it's not really working, it's not really helping us develop."

That dissatisfaction has been reflected - albeit faintly - in communiques from the 'Group of 24' (G-24) bloc of IMF shareholders from developing countries. In particular, G-24 members have opposed
proposals to re-write the IMF's Articles of Agreement so as to make liberalisation of members' capital markets a basic purpose of the Fund.

Their opposition has been hushed. G-24 members have relatively few votes in the Fund, say Southern officials and analysts, and countries dependent on concessional loans to service international debt and keep their governments running are reluctant to stick their necks out.

The current crisis provides an opportunity for Southern governments to make common cause with each other. Just as important - but also far more difficult in the short term - would be for Southern governments to overcome mutual distrust and forge links with the non-governmental community.

This has begun to happen with health and environment ministries in some countries, but finance ministries generally are isolated even from their national parliaments.

"There are quite different interests in the South and we ought to recognise that," says UNCTAD's Akyuz. "On the trade side you see varying interests, for example. But on the financial side there are
more common interests because, by and large, the developing countries are not investors, they are recipients of international financial flows."

Third World solidarity often is a myth, adds a Southern diplomat. For example, middle-income borrowers in recent years have objected to debt-relief proposals they feared would result in increased borrowing costs for them while helping poorer countries.

However, he adds, both the IMF and World Bank now are pleading poverty (the IMF is seeking a capital increase, the Bank says it might need one) as a result of emergency bailouts, so "if, and it is something of an if, (developing countries have alternatives that might avert the next disaster), now's the time to step forward."