CANADIAN FINANCE MINISTER TO CALL FOR NEW RULES TO CHECK GLOBAL MONEY FLIGHT (fwd)

[Robert Weissman <rob@essential.org>]

The Vancouver Sun September 29, 1998

	
MARTIN TO CALL FOR NEW RULES TO CHECK GLOBAL MONEY FLIGHT
	
	The finance minister will urge the closer
	supervision of international banks to bring
	more stability to developing economies. 
	
	GILES GHERSON and ERIC BEAUCHESNE
	SOUTHAM NEWSPAPERS
	
OTTAWA — Declaring the time for talk over, Paul Martin will today in a
major speech to Commonwealth finance ministers in Ottawa, call for closer
supervision of international banks and new rules to check the
destabilizing global flight of money. 
	The finance minister will then take the Canadian action plan to
arrest spreading global financial turmoil to this weekend's G 7 finance
ministers' meeting in Washington, where he hopes enough of a consensus
will be forged to start working on implementation. 
	Martin joins a mounting international call for stricter regulation
and supervision of freewheeling global capital flows that can bring a
tidal wave of prosperity to developing economies, but pull out at a whiff
of trouble, leaving behind economic mayhem. 
	Here are the main features of Martin's blueprint to restore
international financial stability: 
	· Creation of a new international watchdog with staff drawn from
the International Monetary Fund and the World Bank with a mandate to
oversee international lending practices. The "secretariat" as Martin calls
it, would pull together the functions of existing international
supervisory agencies and tighten up international super
	· A new "circuit breaker" to automatically stem international bank
withdrawals from countries suffering financial problems. The mechanism
would force banks to pause before reversing short term investments in a
country, potentially worsening the situation and destroying an economy. 
	· A go slow approach toward forcing developing countries to
abandon capital controls and fully open up their economies to foreign
investment.  In this Martin is signalling a break with international
financial orthodoxy that developing countries should rush the unfettered
liberalization of their capital markets. 
	Advocates contend that open borders attract foreign investment,
but Martin says that developing countries may need continued capital
controls to protect them from economic instability caused by speculative
inflows and outflows of money. 
	Such an in and out stampede of foreign capital has characterized
the financial crisis that spread this year from Asia to Russia and now
South America. 
	A $45 billion Cdn bailout of Brazil is being cobbled together by
the IMF and the U.S. administration aimed at preventing a catastrophic
devaluation of the currency as nervous international lenders rush out. 
	A Brazilian collapse would destabilize South America and add a
fresh threat to the continuing U.S. economic expansion, in turn
jeopardizing Canada's slowing economy. 
	The need to have some way to delay international banks pulling
money out of countries encountering financial difficulties was made
evident last Christmas, when the G 7 finance ministers mounted an
extraordinary behind the scenes campaign to pressure international banks
to roll over loans to South Korea rather than withdraw funds. The
coordinated G 7 action narrowly averted a collapse of the South Korean
economy. 
	Martin said Monday it will take time to convince some other
industrial countries of the wisdom of wiping out much of remaining Third
World debt. 
	"It's obviously going to take international cooperation to arrive
at this point," he told a coalition of social and environmental activist
groups that is pushing the industrial countries to forgive the debts of
the world's poorest nations and for the introduction of a tax on currency
trading. 
	If such a system had been in place, Martin said, the bad borrowing
and lending practices of banks in some Asian and developed countries which
sparked the Asian crisis and in turn the volatility in world money
markets, on which speculators prey, would never have occurred.