south-north development monitor SUNS [Email Edition]

SUNS #4450, Tuesday, 8 June 1999

contents

Finance: Everyone should look for "exit strategies", says BIS (Chakravarthi Raghavan)

Asia: Alarm bells as New Zealand mulls use of hormone on cows (IPS, Penang)

Mexico: Illegal adoption trade flourishing (IPS, Mexico City)

Yugoslavia: Jurists accuse NATO of using banned weapons (IPS, Geneva)

Iraq: No light at end of tunnel for UN (IPS, New York)

Some excerpts from selected articles:

Finance: Everyone should look for "exit strategies", says BIS

Geneva, 7 June (Chakravarthi Raghavan) -- The worst of the crisis in emerging and financial markets seems to be over, further turmoil cannot be ruled out, warns the Bank of International Settlements (BIS), in its Annual Report published Monday.

In recent episodes of turmoil, the world has benefited materially from the continued strength of the US economy.

"However, exit strategies should now be the preoccupation for all prudent policy-makers, including those in the United States," the BIS says in a cryptic, 'read-between-the-lines" comment.

The recent dramatic events in many parts of the emerging world have made it clear that macroeconomic variables can be subject to extreme outcomes, and one should not suppose that advanced industrial economies are immune to such problems. The current difficulties remain deeply rooted in excessive capital formation and credit expansion, and significant imbalances remain within the global economy. And recent experiences show there can be "a darker side to the operation of a market economy, particularly when financial markets are highly liberalized and expectations are prone to recurrent cycles of optimism and pessimism."

While this should not blind one to the overwhelming merits of the system and absence of a plausible alternative, "the real task is to improve the system before suggested alternatives look more attractive than they really are."

But there is no single or simple answer to current economic problems. It is not so straightforward or easy, in practice, to distinguish policies directed to macroeconomic stability from those related to financial stability. Lack of stability in one area often contributes to instability in the other - as the experience of the industrial economies in the 1970s and 1980s, and more recently that of Japan, Mexico and South-East Asia show.

Hence for sustained improvement in living standards, policy initiatives need to be undertaken on a wide front. But different policies to support macroeconomic and financial stability share a number of underlying characteristics.

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