OPPOSITION TO 'LAW OF THE JUNGLE'
by Abid Aslam
Washington, 30 Sep 99 (IPS) -- The International Monetary Fund (IMF) and the World Bank wound up their annual meetings Thursday amid renewed resistance to rapid investment liberalisation and a global economic agenda seen as dominated by rich countries.
"The law of the jungle must be abandoned," Xiang Huaicheng, World Bank governor for the People's Republic of China, told the 182-nation gathering of economic leaders. "Globalisation and integration will not be sustainable if they benefit only a few... In the process of reforming the international financial architecture and establishing a new international financial order, the developing countries' full participation is essential and their interests and demands must be reflected," Xiang declared.
Other delegates challenged the rich countries to shut down aggressive efforts to open up Third World markets for their investors - and instead to open industrial country markets for exports from developing countries.
Those sentiments were echoed at the United Nations and the Organisation for Economic Cooperation and Development, setting the stage for upcoming negotiations of the World Trade Organisation (WTO).
Malaysian Deputy Finance Minister Mustapha Mohammed flayed "the absence of prudential rules to guide the profit-maximising behaviour of owners of capital, (which) has significantly negated much of the benefits of free capital flows." Trade liberalisation had been accompanied by rules on market opening measures and procedures for dispute settlement but there were no regulations to protect small economies from the "predatory tendencies of large market players," he said. As a result, "the global financial system clearly does not provide a level playing field, as large players can effectively corner and manipulate small emerging markets with impunity."
IMF and World Bank governors, accustomed to shrug off such statements from China and Malaysia, but this week Japan and Russia joined the rebellion.
"The use of non-standard interventions, such as those made by Hong Kong and Malaysian authorities... may be necessary in special circumstances," Bank of Japan Governor Masaru Hayami said. His comments were seen by some officials as an unexpectedly strong defence of actions taken in defiance of US and IMF wishes.
Russian Finance Minister Viktor Khristenko, in a statement released during the meeting, urged "prudential controls of capital flows, especially short-term ones."
Russian officials noted that they had eased most controls on capital in an effort to build a market economy - only to see their compatriots pull their money out of the country at a rate of about one billion dollars per month.
High-interest sovereign bonds had attracted foreign investment but collapsed last year, when the government devalued the rouble and defaulted on domestic debt.
"There were risks," said one official. "We were not prepared but they (the IMF and Western governments) did not prepare us. We had corruption but look at the newspapers, were not they (Western banks) also corrupt?"
South Korea's IMF governor, Bong-Kyun Kang, called for "stepped- up international efforts for improved monitoring and regulation of hedge funds to minimise their disruptive effects on emerging market economies."
Japan's Hayami voiced his support and called for private-sector involvement in preventing and repairing future financial crises. "The continued use of public funds to bail out private investors is not viable and invites moral hazard," he argued.
Efforts to 'bail in' private investors have stalled, as have proposals for a 'stay of litigation' amendment to the IMF's Articles of Agreement, which would prevent individual creditors from derailing sovereign debt restructuring, such as that under way in Ecuador.
The United States opposed the amendment on grounds that it in effect would invoke another clause allowing capital controls - which the US government also opposed. Thus, the Fund and most members restricted themselves to debating the proper "pace and sequence" of liberalisation.
Even within that constricted realm of policy options, the Bank and Fund could do more to help countries to prepare themselves for open financial markets, Australian Treasurer Peter Costello declared.
Some participants admonished the Bretton Woods institutions to resist further politicisation.
The Bank and Fund, established to assist member states, must observe "the distinction between offering advisory views and dictating a series of inflexible instructions to developing countries with a view to putting their economic house in order," said Hossein Namazi, Iran's World Bank governor.
Mohamed Bait Elmal, Libyan governor for the Bank, feared that "the promotion of globalisation as the freedom of movement of goods, services, labour, capital and information will lead to monopolisation by a few countries and corporations of international trade in goods and services" and weaken developing economies in the absence of proper regulation. The Bank's and Fund's job was to advise member countries on how best to secure their own interests in the global economy, he added. "Consequently, their approach must be characterised by absolute professional objectivity removed from any political...influences."
At the General Assembly in New York, Malaysian Prime Minister Mahathir Mohammed told investors that his government would further ease its year-old capital controls ONLY AFTER WORLD LEADERS HEED CALLS TO REIN IN CURRENCY SPECULATORS. "WE WILL NOT LIFT OUR SELECTIVE CONTROLS UNTIL THE THREAT IS REMOVED," he declared.
The IMF, which initially joined a US-led political and media offensive against Malaysia's actions, admitted in a report this month that the controls had helped to shield and revive the economy.
Third World delegates also voiced opposition to rapid liberalisation in Paris last week, during an international conference on investment policies organised by the OECD. The conference was to have marked a new beginning for the OECD, after its plans to conclude the MAI were thwarted earlier this year.
Industrial countries are taking their fight for a covenant on investors' rights to a new front: the WTO, which is slated to launch a new round of world trade negotiations in Seattle, USA at the end of November.
At the WTO, the EC and Japan at the WTO are pressing for a new round of negotiations including investment rules. The US has not given its backing (lest the Seattle agenda and negotiations get bogged down).
But the US, with the EC and Japan, is pushing, for further negotiations on services, and for developing countries to further 'liberalise' their financial sectors, by 'liberalising' the conditions for investment in service sectors that would enable establishment and/or take over as fully owned subsidiaries, service firms.
The above article by the Inter Press Service appeared in the South- North Development Monitor (SUNS) .