Earth Trends by Martin Khor

Monday 5 March 2001

SEMINAR THROWS LIGHT ON GLOBALISATION

The conference on globalisation in Kuala Lumpur last week was a big event that discussed the many facets of this controversial process.  The challenges of trade liberalisation and financial instability were focused on, as well as some practical measures needed to face them.  Converting the ideas into action will take more creative effort.

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Last week's international conference on globalisation brought together several world experts to discuss multiple aspects of this much talked about phenomenon.

Held in Kuala Lumpur, the conference was organised by the Finance Ministry and the Institute for Strategic and International Studies Malaysia.

At the opening, ISIS chairman Tan Sri Noordin Sopiee quoted from a cover article of Business Week, that questioned current globalisation trends and that called for policy changes, especially since many developing countries were not benefitting.

Noordin was making the point that mainstream, pro-establishment media and thinkers were now asking for a review of present globalisation policies. The criticisms are not only coming from anti-market radicals or citizen groups.

Prime Minister Datuk Seri Dr Mahathir Mohamed called for a gentler, more compassionate form of globalisation.  He warned about how developed countries were making use of international rules and institutions to promote "absolute globalisation."

In that vein, he called on developing countries to reject the proposal for a "new round" of negotiations in the World Trade Organisation, until the imbalances and problems arising from the present agreements are first resolved.

The serious problems that a "new round" can cause was highlighted by Bhagirath Lal Das, a former Ambassador of India to the GATT (the WTO's predecessor) and also formerly the head of the Trade Division of the United Nations Conference on Trade and Development (UNCTAD).

He focused on the implications of the proposals by developed countries to initiate new agreements in the WTO on investment, competition and government procurement. 

These would "lock in" global rules that oblige developing countries to open up their economies to the free entry and operations of investors and products of developed countries. 

As a result, governments would find it increasingly difficult to formulate or implement development policies, including the maintainence or growth of local firms and industries.

Das said that if several or even a few developing countries countries understood the dangers and got together to protect their interests, they could prevent the wrong issues from entering and overloading the WTO.

In the next few years, developing countries could then try to get the WTO to review and amend its present rules so that they serve these countries' needs, and not cause dislocation of their firms and farms that are still too weak to withstand foreign competition.

A major focus of the conference was the instability of the global financial system, and what needs to be done.

UNCTAD's chief economist, Dr Yilmaz Akyuz, pointed out that the massive flow of short-term funds had been responsible for the volatility in many developing economies, and was the main cause of recent financial crises around the world.

Whilst there are efforts under way to reform the "global financial architecture," said Akyuz, unfortunately they were not addressing the basic issues.

The reforms were focusing on disciplining debtor and developing countries so that they have stricter financial codes and standards, more transparency and higher foreign reserves.

What is more needed, argued Akyuz, are global-level reforms such as regulating cross-border capital flows, stabilising exchange rate systems (including among the dollar, yen and euro), and international mechanisms to resolve crises when they occur.

These mechanisms include the option for the country in financial difficulties to declare a "debt standtill" (temporary stop to loan servicing) and for a system of "orderly debt workout" to be implemented, in which the debtors and creditors can work out a fair sharing of losses, whilst re-starting credit flows.  There is also a need to reform the IMF, including its governance system.

Unfortunately, these global reforms are not being discussed (or at least not adequately enough) in fora such as the International Monetary Fund and the Group of 20 countries.

Akyuz said that developing countries should discuss among themselves how they would like the reform process to move forward. 

Meanwhile, in the absence of global arrangements, it would be unwise for developing countries to cede any more authority to multilateral financial institutiolns through new commitments.

Akyuz also encouraged the setting up of regional arrangements to provide defence mechanisms against systemic failures and instability.

This theme was also taken up by Professor Yu Yong-ding of the Chinese Academy of Social Sciences based in Beijing.  He pointed out that whilst China was liberalising its economy, it was still very cautious about liberalising its financial system and its currency, especially after seeing what happened to more financially open countries in the Asian crisis.

He also urged that Asian countries look towards monetary cooperation so that they could help one another prevent and tackle future crises.

Dr. E. Sakakibara, former Japanese Deputy Minister coordinating international financial issues (and famously nicknamed Mr Yen), gave three talks.  In one of them, he gave concrete proposals for accelerating the process of Asian regional cooperation.

The emerging East Asian grouping of "Asean plus Three" (the three bring China, Japan and South Korea) should, he said, have a secretariat to service it and develop its activities further. 

For example, it could develop an Asian Monetary Fund that Asian countries facing financial difficulties could draw from.   The conditions for such loans could be tailored to each country's conditions and needs, and thus have the potential of being more appropriate that the IMF conditions.

Sakakibara said the mood was now more ripe for such a regional arrangement as both Japan and China are seeing eye to eye on such a move.  He also thought that India and possibly other countries could eventually join in.

At a closing session, the conference chairman Dato Mustapa Mohamed said that the government had set up a consultative council on globalisation issues (of which he is the chairman) and that the seminar had been one of its activities.

Through the seminar, many Malaysians had learnt more about the globalisation process, and this would help the policy making process.

Mustapa was right about the "educative process" generated by the seminar, as there were over 600 participants, that included public servants, academics, NGOs and businessmen.

However, converting knowledge into practical policies, and into collaboration with other countries to reshape globalisation, is a difficult task.

As many seminar participants stressed, it is however not an impossible task.