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Focus on Trade #30, Part 1 of 3 (fwd)
Here follows the first of three parts of the Bangkok-based Focus on the
South's electronic newsletter. This is a lot of material -- if you want to
pick and choose, I recommend especially reading part three.
Robert Weissman
Essential Information | Internet: rob@essential.org
---------- Forwarded message ----------
Date: Tue, 27 Oct 1998 18:50:42 +0000
From: Administration <admin@focusweb.org>
To: focus-apec@igc.org
Subject: Focus on Trade #30, Part 1 of 3
FOCUS ON TRADE
Number 30, October 1998
Part 1 of 3
A regular bulletin produced by Focus on the Global South, Bangkok,
Thailand
Focus-on-Trade is a regular electronic bulletin providing updates and
analysis on regional and global trade and finance. Although
initially concerned with APEC, the scope of the bulletin now extends
to include the World Trade Organisation (WTO), the ASEAN Free Trade
Area (AFTA), the Multilateral Agreement on Investment (MAI), the
International Monetary Fund (IMF) and any other acronyms that require
critical attention. Focus-on-Trade contains updates on trends in world
trade, with an emphasis on analysis of these trends from an
integrative, interdisciplinary viewpoint that is sensitive not only to
economic issues, but also to ecological, political, gender and social
issues related to developments in world trade.
Your contributions and comments are welcome. Please contact us c/o
CUSRI, Wisit Prachuabmoh Building, Chulalongkorn University, Bangkok
10330 Thailand. Tel: (66 2) 218 7363/7364/7365, Fax: (66 2) 255 9976,
E-Mail: admin@focusweb.org, Website: http://focusweb.org
Focus on the Global South is an autonomous programme of policy
research and action of the Chulalongkorn University Social Research
Institute (CUSRI) based in Bangkok.
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WHILE it’s too early to pronounce the Washington consensus dead, it is
in bad shape and down for the count. Political paralysis in the US and
the IMF’s failure to contain the spread of financial crises, has
created a power vacuum which presents a tremendous political
opportunity to push for reform of the international financial system.
Civil society is notching up some wins on the trade and investment
front: trade lobby groups have blocked US Presidential fast track
powers for the second time, the MAI continues to be derailed, US IMF
funding was stalled for months until it was slipped through in an
omnibus funding bill (and even then effective lobbying ensured that
some of the worst liberalisation conditions were withdrawn) and there
is a growing public awareness of the negative effects of wholesale
trade and investment liberalisation. These, together with collapsing
hedge funds and fist-wide cracks in the present international
financial architecture, create a climate of change and opportunity.
There is a risk, however, that measures proposed so far to ‘reform’
the global financial architecture – more transparency, surveillance,
institutional strengthening and better co-ordination – will be seen as
an end in themselves and that the limited proposals of the G22 will be
accepted as sufficient. The other danger is that the debate about
reform will be limited to ‘experts’ so that prevailing interests can
control the process. It’s important now to find ways of intervening so
that civil society is part of a wide-ranging and open-ended debate
about long term reform and alternatives, rather than relegated to
simply responding to short term proposals put forward by existing
institutions.
In this issue, Nicola Bullard and Robin Broad look at what did – and
did not – happen at the World Bank and IMF meetings in Washington in
early October, assessing the shifting political allegiances and the
possibilities for change.
We have also included the declaration from the Washington-based Bank
Information Centre international strategy session which lays out the
principles for the new ‘global financial architecture.’ Sign on now if
you haven’t already (bicusa@igc.org)
Also in this issue Jayati Gosh, in her article ‘Another World
Depression?’ brings home the urgency of the global economic crisis,
but is pessimistic about either Europe or the US taking the lead.
‘The US,’ she says, ‘ seems unwilling to take on the duties and
responsibilities associated with leading world capitalism, and the
response of most European leaders has been similarly unimaginative.’
Meanwhile, Asia has started to look for it’s own solutions and this
year’s APEC meeting may well bring a confrontation between East and
West. Finally, Nicola Bullard’s article ‘Regulation or Barbarism’
argues that it’s not enough simply to ‘cool down’ hot money: we must
challenge the whole idea that there is anything useful or productive
in speculation.
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IN THIS ISSUE
Part 1
The Financial Crisis: Deja Vu All Over Again
by Robin Broad
The beginning of the end of the Washington consensus
by Nicola Bullard
Draft Declaration from the participants of the Bank Information Center
Strategy Meeting October 9-10, 1998
Part 2
Another World Depression
By Jayati Gosh
Asia opts for a do-it-yourself solution
by Nicola Bullard
Part 3
Regulation or Barbarism
by Nicola Bullard
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The Financial Crisis: Deja Vu All Over Again
by Robin Broad *
Earlier this month, as international economic policy-makers gathered
at the World Bank and International Monetary Fund annual meeting, the
U.S. government squandered a rare opportunity to quell the gathering
global economic storm. Instead, it placed the longer-term interests
of the world at risk while catering to the short-term gains of Wall
Street.
For me, it was a case of deja vu, pulling me back to the mid-1980s and
the last time parts of the global economy teetered on the brink of
collapse. Then, millions suffered across the world as Wall Street
banks bled poorer nations to repay crushing debts. When the outcry
from the Third World became too much to ignore, Treasury Secretary
James Baker used the occasion of the 1985 Bank and Fund annual meeting
to announce with great fanfare that the U.S. had a plan to solve the
debt crisis.
As an international economist in the Treasury Department who had
worked on that response, I knew that this "Baker Plan" was little more
than a public relations escapade to forestall any comprehensive action
to reduce the debts. And, as the burdens and the pain of the debt
crisis rose, I blew the whistle in a New York Times op- ed (September
28, 1987), to the chagrin of my former colleagues.
It is time to blow the whistle again. Last week the Clinton
administration pulled the same trick. This time, with the typhoon
winds of the financial crisis having knocked an estimated 20 million
people off global job rolls, President Clinton announced what the
press widely reported as a new global plan to enable the IMF to
proactively address the contagion. Those following the speech closely,
however, knew that there was no real plan to attack the roots of the
crisis.
The so-called "plan" revolves around the possibility that individual
countries might -- might -- get access to some -- some -- IMF money
up-front before a crisis hits. But no money amounts were given. Yet,
the appearance of U.S. action again forestalled more effective
action-plans by others.
Beyond mere bureaucratic inertia, the cause of the White House
inaction then and now is the same: a dangerously narrow view of the
national interest. Indeed, protecting Wall Street interests in the
short-term is being mistaken for promoting broader public interests,
at home and abroad.
Today, the cast of characters and the specifics of the crisis have
changed from Baker's and my days at Treasury -- although ironically
today's crisis is exacerbated by the very failure of the past U.S.
responses to reduce significantly the debt burden of countries like
Brazil. The current crisis results from the fact that our global
economy has been converted into a virtual casino, replete with
volatile short-term capital flows, exploding real estate bubbles, and
rootless currency speculators and hedge funds operating just barely on
this side of the law.
The casino has been constructed on the zealous, but unfounded, belief
held by those in charge that textbook free-market economics could be
applied to the real world. Their irresponsible mantra has been: free
trade, free investment, deregulate and privatize.
The U.S. Treasury has religiously promoted the free market formula in
good part because it has been a boom to the thousands of Wall Street
funds that made a killing off "emerging markets" for much of this
decade. That such policies made countries extremely vulnerable to
external shocks was simply not on Treasury's radar screen.
Nor was there acknowledgment that more IMF money and more IMF advice
have only bred more problems -- economically, socially, and
environmentally. Even before Russia, Indonesia and other nations'
economies collapsed, the IMF policies of "export more, spend less"
were exacerbating inequalities, while pressing countries to pillage
precious timber, minerals and other natural resources to earn foreign
exchange.
Last week's U.S. pronouncements have done nothing to improve the
prospects for the world economy or to reduce the chances of widespread
starvation in Indonesia or Russians freezing to death this winter.
Fortunately, there are initial rumblings among European and Japanese
allies, some tired of decades of the United States running roughshod
over their proposals. And there are signs that World Bank president
James Wolfensohn and his senior economist Joseph Stiglitz may be
finding their voices of dissent. A debate over the need for some
regulation of global financial markets has begun -- but it is still
far too quiet and far too circumspect given the gravity of where we
are.
Much more is needed. A real plan would tame globalization by allowing
for national and global controls on capital. It would be built on an
acknowledgment that the Fund's (and Bank's) development model has
failed, and that trade and investment are not ends in themselves, but
tools for dignified work and healthy environments.
Rather than enhance the Fund's reach, a real plan would return the
Fund to its narrower, original mandate of lender of the last resort.
And key inputs to the plan would come not from Wall Street, but from
citizen movements and other expert critics across the globe, many of
whom accurately predicted the crisis.
The costs are too high this time around to allow the U.S. government
to disguise one of its non-plan plans with the rhetoric of a
comprehensive response.
* Robin Broad is a professor of international development at the
School of International Service, American University. She is a former
international economist with the U.S. Treasury Department.
The beginning of the end of the Washington consensus
by Nicola Bullard*
In spite of the economic maelstrom threatening to engulf the world,
this year’s IMF and World Bank meetings were notably subdued. It was
clear to everyone that the global economy was in trauma: Long Term
Capital Management, one of the world’s biggest hedge funds, had just
been bailed out by what the New York Times described as ‘Wall Street
cronyism’ (with some arguing that not to so would have threatened
world financial markets). Asia’s economies are showing little sign of
recovery in spite of massive IMF intervention. Russia, suddenly and
catastrophically, has been reduced to a cashless pariah (not that
anyone dared speak about Russia – obviously its spectacular collapse
is not a topic for polite company!). Brazil, meanwhile, is desperately
trying to keep the speculators from the door, and Japan is seemingly
unable to muster the political will to restructure its failing banks.
Things were looking bad, and no one knew what to do.
Everyone was hoping that the G7 could pull a rabbit out of the hat.
But all the G7 could come up with was that "the balance of risks on a
global basis has shifted" (meaning, "oops, this is getting serious,
it’s starting to effect us folks in the North). In their final
statement, the G7 called on its members to lower interest rates, urged
Japan to fix up its banks, reaffirmed the central role of the IMF
(with some concessions to improved transparency and accountability)
and made a commitment to continue our efforts to "strengthen the world
open trading system, with free trade flows and open capital markets."
Pretty uninspiring stuff: no magic wand, no puff of smoke and not a
rabbit in sight.
By the end of the week, people were left wondering what had happened.
There were no world-grabbing headlines, no major revelations, no
visionary to lead us through the troubled waters. In fact, it seemed
that nothing had happened.
Viewed differently, however, this year’s meetings heralded a
sea-change. For the first time in twenty years questions are being
asked, people and institutions are changing the way they think about
the global economy and, importantly, there were critical changes in
power relations, political alignments and paradigm shifts. And this
has opened a whole new realm of political possibilities for
significant reform of the way international institutions operate.
Are there reasons to be so up beat and optimistic? Yes, many. For one,
the fact that the G7 or the US didn’t pull a rabbit out of a hat is
good news. It means that there is a lot of talking still to be done
and a lot of questions left unanswered. Second, the apparent parting
of the ways between the IMF and the World Bank is good news. President
Wolfensohn, who is a brilliant public performer, and his equally
brilliant and refreshingly humane sidekick and chief economist, Joseph
Stiglitz, did an amazing job of making it clear that they are not the
IMF. The World Bank, says Wolfensohn, has a heart. "We have focussed
too much on economics… if we act now with realism and foresight, if we
show courage… we can give our children a more peaceful and equitable
world. One where poverty and suffering will be reduced. Where children
everywhere will have a sense of hope."
Meanwhile, the IMF was left standing, rather like the Tin Man, with no
heart at all. Dry, unflinching and unapologetic to the last, Managing
Director Michel Camdessus and Chief Economist Stanley Fisher, are the
anti-thesis of Wolfensohn and Stiglitz. The differences,
interestingly, even extend to physical appearance. Wolfensohn and
Stiglitz are dishevelled and cuddly, Camdessus and Fisher, elegant,
steely and acerbic. And they lost at every stage of the PR stakes. No
mea culpas for terrible policy advice in Asia, hardly any movement on
the question of capital controls, and an over-arching attitude of
defensive arrogance. However, the rift might be more apparent that
real, simply a perfection of the ‘good cop, bad cop’ routine that the
Fund and Bank have deployed so effectively in the past. Certainly, the
coat-of-paint reforms proposed thus far are designed to maintain the
status quo by controlling some of the nasty side-effects of economic
globalisation and to stop anyone from asking hard questions, like
whose interests are being served, who is making the decisions or is
there another way to organise the way we do things? Regardless of
whether or not the rift is real, Wolfensohn and Stiglitz have
committed themselves to discussing alternatives and finding ways of
bringing ‘more people to the table.’ We should take up the offer.
Another bright moment was the growing assertiveness of European Union
member countries. After months of unquestioning acceptance of US and
IMF leadership, UK Prime Minister Tony Blair called for ‘sweeping
reforms’ of the Bretton Woods Institutions in the week before the
annual meetings and his Chancellor, Gordon Brown, arrived in
Washington with some wide-ranging suggestions about how this might be
done. And in what seemed to be an attempt to dilute the power of the
IMF Board of Directors and the US, France proposed up-grading the role
of the IMF Interim Committee to give it more policy making power. This
was supported by Michel Camdessus, who may well be happy to have a
buffer zone between himself and the US Treasury. Now that a majority
of EU member countries have left or quasi-left governments, there is
an expectation that they could take a more decisive role. The
introduction of the Euro in January 1999 will pose a challenge to the
dominance of the US dollar and the Social Democrat-Green coalition in
Germany has the clout to exercise progressive policy leadership on
these issues. Again the challenge is to make the most of this
political opportunity.
In the meantime, everyone is talking about a new global financial
architecture but, at the risk of mixing metaphors, at present the
global elites are merely shifting the deck chairs on the Titanic while
the global economy is sinking. But, for the first time in almost two
decades, fundamental issues are on the agenda, there is growing public
awareness that things are not working, and there are important cracks
in the institutional armour. Now is the time to push the cracks wide
open, and not simply accept the new wallpaper being offered by the
present bunch of neo-liberal decorators who are trying to pass
themselves off as new-age architects.
* Nicola Bullard is a senior associate with Focus on the Global South
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Draft Declaration from the participants of the Bank
Information Center Strategy Meeting October 9-10, 1998
Northern and Southern elites have fashioned a system of capitalism for
the few. For many, many years, people in most of the world have
suffered the crises associated with northern consumption, and the
colonisation and global resource extraction which has accompanied it.
As trade grew to include the global free trade in capital, so too, the
economic crisis has grown to global proportions. The spirit of
triumph that has accompanied the accumulation of capital has deadened
our senses and deafened us to the cries of people who are excluded
from the governance and the benefits of the economic systems. During
this decade, warning signals have issued from Mexico in 1994 and in
East Asia in 1997. This system is throwing the global community over
the precipice into recession and depression, social conflicts, and
environmental degradation.
Northern and Southern elites have created a speculative economy which
has become more powerful than the real economy where workers produce
goods and services. In the name of free trade, they have removed all
barriers to capital mobility in trade and investment regimes. Leaders
have shaped a system of economic governance that marginalizes the
nation state and civil society while empowering multinational
corporations and global financial speculators.
Parallel to the globalization of finance and markets, there has been
the emergence of a global civil society movement that builds up from
local struggles and endeavors to uphold fundamental economic, social,
and environmental rights. The time has come for us to move from
resistance to proposition.
We, the members of this global civic society, call for a new
international financial architecture. And, we call for new architects
and a new foundation for these economic structures. The new
foundation must rest on principles of justice, ecological
sustainability, equity, inclusiveness and democratic pluralism. The
new architecture must include mechanisms to ensure accountability of
international institutions to localities and citizens affected by
their policies and programs. All politics are local and all economies
are increasingly global. Bridges, in the form of accountability
mechanisms, must connect localities to international institutions.
The architects must consider the appropriate scale and scope of these
new international financial institutions and also the implications for
the necessary regulation of global capital, that would ensure a just
and pluralistic alternative architecture.
Whereas the ultimate indicator of a healthy economy is a world in
which equity, justice, fairness, sustainability, access to meaningful
work, and the ennoblement of humanity are paramount;
Whereas these attributes are not currently served by the existing
architecture of international financial institutions or the economic
model they serve, but instead these institutions contribute
significantly to exacerbating a litany of social, environmental,
economic, and political problems;
Therefore, the current architecture of international financial
institutions and the model they serve should be replaced with one that
supports a healthy economy as defined above, and that these
institutions, whatever their determined scale, scope, and structure,
should be built on the following principles:
1. Poverty eradication, debt annulment, and environmental restoration
should be central components of the new architecture; 2. There should
be full recognition that countries need each other, that we are
interdependent; 3. The process of developing such institutions and the
accompanying global network of strong local economies should be an
ongoing and open-ended one, always open to improvements and created in
a participatory, transparent process, which recognises civil society
as playing a legitimate and influential role; 4. There should be no
single solution or ideology. Economic pluralism and diversity are
necessary to reflect local, national and regional realities. Common to
a diversity of solutions and ideologies, however, should be adherence
to principles of democracy; 5. Changes in international finance
institutions should be directed at assuring transparency and
accountability in both public and private institutions as a
prerequisite for democratisation. The centralisation of policy making
should be minimalised to the greatest extent possible, and the
creation and support of community-level enterprises should be
prioritised; 6. Changes should be based on needs of humanity, and not
assuring returns to capital; 7. A return to strong domestic and
productive economies and a shift away from speculative economies
should be prioritised; and 8. Private gain should not depend on public
loss, nor should private losses be transferrable to public losses.
end Focus on Trade #30, Part 1 of 3
Focus on the Global South (FOCUS)
c/o CUSRI, Chulalongkorn University
Bangkok 10330 THAILAND
Tel: 662 218 7363/7364/7365
Fax: 662 255 9976
Web Page http://www.focusweb.org
Staff email addresses:
----------------------
Walden Bello W.Bello@focusweb.org
Kamal Malhotra K.Malhotra@focusweb.org
Chanida Chanyapate Bamford C.Bamford@focusweb.org
Nicola Bullard N.Bullard@focusweb.org
Ehito Kimura E.Kimura@focusweb.org
Li Kheng Poh Lk.Poh@focusweb.org
Marco Mezzera M.Mezzera@focusweb.org
Regina Abesamis R.Abesamis@focusweb.org
Soontaree Narkviroj Soon@focusweb.org
Jim Charoonpatarapong Jim@focusweb.org
Ranee Hassarungsee Ranee@focusweb.org
Mayuree Ruechakieattikul Nok@focusweb.org
Focus Administration Admin@focusweb.org
______________________________________________________