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NFI
is like "mother's love and apple pie" GENEVA: Within a short period of a year or so, a "new financial architecture" (NFI or nfi) has become what "mother's love and apple pie" was to Americans of a generation ago: something no one can oppose without earning public opprobrium, and hence to be responded to with a "yes, but..." Now there is hardly any international gathering - official and intergovernmental or non-official - where this term is not used. And almost everyone is for a "new financial architecture" - the three words capitalized in some cases, and in lower case in others. In content, the proposals advanced range from another "tinkering" (as in the Jamaica agreement - see "Leopard doesn't change its spots", issue No. 204) to fix the IMF-based "non- system" - with more funds and powers to the IMF management and officials to bring about "transparency" in countries and governments of the developing world (and save Goldman Sachs and others on Wall Street) - to a return to some Keynesian designs - like a world clearing union and central bank - or even going back to a "gold standard." And the voices of those who diagnosed (and even anticipated) accurately the financial crisis (beginning in Thailand in July 1997) and its spread across the global markets as a symptom of the deep-rooted failure of the monetary and financial system, which needed drastic reforms, have been drowned out - almost. Hijacked Now the IMF is for an "NFI" and so are the US administration and Treasury who embraced and hijacked it, but are more coy in the use of the term, lest it take shape in more fundamental reforms. The G7 finance ministers and officials who want to ensure their own voice in the outcome, and the private investment funds and the financial service operators who collectively created this current mess, also have been promoting their own "yes, but..." NFI versions. And so is the World Bank (as Bank President James Wolfensohn's discussion draft for a comprehensive development framework shows), which is trying both to distance itself from the IMF (and its baggage of public and private image) and also to work with the IMF and the WTO to "integrate" developing countries into the world economy, and "tie" their policies fully and completely into the Washington-driven "globalization" process. Those opposing "globalization" and the imperialist dreams of a single world capitalist model are often ridiculed as Luddites or Don Quixotes tilting at the windmills, what happened to globalization in the 19th century when it marginalized the majority and social forces put an end to it having been forgotten. And just as in the 1980s, when UNICEF, UNDP and others began talking about "adjustment with a human face", the Bank is now talking of the IMF medicine being administered with "social safety nets". In industrialized societies, such terms mean giving some relief to the small minority of "misfits" unable to benefit from the market, and are unemployed or lose out. But since in the developing world, the poor and the losers are the vast majority, and it is so impractical to have "social safety net" policies and means-tested programmes, the Bank is even willing to talk of some "subsidies" for the consumption goods of the poor. But the schemes, when sought to be implemented, will run against IMF conditionality policies to shrink government budgets and eliminate deficits, and the WTO rules about subsidized public distribution systems and the ceiling levels in their agricultural schedules will prevent "market" interventions for the better-off to subsidize the poor. Ignored The Group of 24 (developing-country group at the Fund/Bank institutions), in the aftermath of the Asian crisis, at their meeting in February 1998 in Caracas, came out in favour of international arrangements for supervision and regulation of financial markets and institutions; and for caution on liberalization of capital accounts under IMF auspices, calling instead for a "progressive and flexible" approach and "orderly liberalization". And they also called for a "wide-ranging" review by a "Task Force" of industrial and developing countries on a number of issues relating to the reform of the international monetary and financial systems. And while some of these views were reflected in individual speeches and presentations at the 1998 Spring meeting of the Interim and Development Committees, the G24 views were totally ignored by the IMF management (which usually draws up a communique for the Interim Committee, even before the committee and its ministers meet). And the G24 did not even attempt to force a footnoted reference in the Interim Committee communique to the views contained in their Caracas declaration. But the Clinton administration and its Treasury Secretary Rubin (who raised an enormous amount of funds for the Clinton campaign on Wall Street and went to his job at the Treasury, sedulously working to promote the interests of Wall Street firms, partners and bonus-sharing staff) hijacked the discussion on monetary systemic reform issues into a so-called "Group of 22" . At first this was a one-off meeting, but some follow-up meetings ensued and it may end up a more or less semi-permanent group outside, managed by the US Treasury. But the IMF and its staff are fighting back. The Fund is trying to get the issues back into its ken, through the Interim Committee process (which functions by at first reaching policy consensus with the US Treasury, then the G3, G5 and G7/G10, and subsequently getting it rubber-stamped at the actual Interim Committee meetings). Towards this end, the IMF management is trying to lobby developing countries and their G24 group to get behind the IMF's ideas of "lender of last resort" - even after the spectacular failure of the IMF experiment (applying band-aids and tourniquets to internal haemorrhage caused by the neo- liberal dogmas) in giving money to Brazil before the crisis, for when the crisis hit anyway, the (failed) old conditionality approaches to current account imbalances were applied. In the process, the IMF and others are advising the developing countries to set their sights on what is "feasible" and needs immediate attention. "You have to hurry up with your views and suggestions; it is already late, and the train is leaving the station." The whole idea is to coopt the South into the tinkering reforms that the US Treasury or IMF management would propose, as was done at the time of the Jamaica amendment to the IMF articles, and derail the momentum gathering for more fundamental and equitable reforms as part of a long-haul process. Given the annual rotation of the chairmanship, it has taken the G24 nearly a year to try to put together a group of individual experts from several disciplines to do some more detailed thinking and planning. And the G24 are not even sure whether they should set their sights on "influencing" the immediate tinkering (favoured by the US and the IMF), where they will have no real say, or look to medium- and longer-term fundamental reforms and redesigning of the architecture. Linkages between trade and finance Nor have the treasuries in important developing countries been willing to coordinate (and share power) with their trade colleagues, formulate a coordinated strategy, and speak with one voice (even if tactics have to be different in different fora) and create blockages at the WTO to force the US and others to engage in serious "dialogue" on these interlinked issues and questions. In his talks with Harry Dexter White for the post-war system (that resulted in the Bretton Woods architecture), Keynes saw the intricate linkages between the financial and trade systems. In his letter to Lord Addison, he underlined that in the face of "monetary chaos", it is difficult to make any advance on multilateral trade. For a brief while, after Marrakesh, but before the entry into force of the WTO, it was thought by some that the "rule- based" trading system will bring some "order" not only into trade relations, but into a wider framework of the neo-liberal international economic order. The dream of a liberal order, which became the Washington Consensus dogma of the 1990s, collapsed with the Mexican crisis of 1994. And as the Brazilian representative recently said at the WTO (at the Dispute Settlement Body in connection with the banana dispute), the multilateral trading system has fallen short of expectations, generated when the WTO was "sold" to Parliaments, of it being strengthened by the rules of the Marrakesh Agreement. Nevertheless, the IMF/World Bank/WTO axis for a world neo- liberal order (where governments will cede power to corporations) is trying to march on - but on three wobbly legs. "Plurality" of views And other international organizations of the UN system, consciously or unconsciously, have been walking the tightrope - economists in some advocating basic changes and approaches, and others following the twists and turns of the "Washington thinking" and adapting themselves to it, formulating advocacy economics studies (which no economics professor would tolerate in a first-term paper from a study) in which "capital" is held to be like any other commodity amenable to price changes and market signals, provided governments do not intervene, and liberalize financial services and investments! Some claim to be encouraging a plurality of views and democratic debate. Perhaps they should read what Myrdal wrote at the UN ECE three decades ago, on the difference between independent academic economics research and views and those in international secretariats. This attempt at plurality is resulting in a confusing advocacy of policy views and advice from the same secretariat, and even in the same personalities giving different speeches to different audiences, depending on the speechwriters and the "drafts" from the sponsoring divisions. The cacophony of views is breathtaking. The UN Secretary-General Kofi Annan was arguing last year, in New York and elsewhere (picking up what UNCTAD's Trade and Development Reports have been saying for most of this decade), for a greater say for the UN in hardcore economics issues and policies and in drawing up a new financial architecture (including naming a team, headed by the ECLAC executive director Ocampo, to work on an NFI). And just as the report (after revision of two or three drafts) went to him, Annan went to Davos to propose a "compact" between the TNCs and the UN: the TNCs promote human rights, better conditions for workers and environment-friendly policies, in return for which the UN would provide political support for an "open global market". There are other variations too - like some documents of UNCTAD challenging the globalization thesis and advocating careful and selective policies and strategies by developing countries, depending on their particularities; others promoting liberalization, helter-skelter, of trade and investment and any other interface of countries and cultures with the outside (Christian, European) world, and some dismissive of the UN system's efforts to engage governments in policy dialogues and discussions or negotiations. And developing countries, depending on the forum where they speak (if they do speak at all), advocate policies and proposals, unaware of and sometimes even contrary to what their own country representatives do in other fora. Until the tearing down of the Berlin Wall and the implosion of the Soviet Union, the ideological battles and arguments were said to be about "free-market-free-trade" vs. the command economies, democracy vs. totalitarianism and so on. But the collapse of the centrally planned economies and their versions of Marxism as practised led some to think that like Mao's "let hundred flowers bloom", countries would be able to develop their own national capitalistic structures, in tune with their cultures and traditions, and hard and soft infrastructures and institutions, in their efforts at development. But Mao raised the "hundred-flowers-bloom" slogan merely to identify and cut down all but his own. And neither the blooming of hundred flowers nor their being cut down did China any good. From out of Washington have come in this decade in quick succession the "Washington Consensus" as a set of rules for economic policies in the developing and transition economies, followed by the WTO (and its claims of a "rule-based" system providing trade security to all nations), with the trade body's reach into the developing and transition economies also pushed by the IMF and the World Bank (through their conditionality funding). But each of these doctrines in economic theory and development economics has been like the fashions in the Paris haute couture salons - the hemlines going up or falling down every year to force people to throw away last year's clothes and buy this year's. It would, however, be unfair to blame international functionaries for changing their positions and views to advance their own careers and advocating the policies favoured by the dominant powers. Academics are probably no different. Prof. Dornbusch has expressed considerable scepticism at national efforts to regulate and restrict capital flows, and was one of the prominent speakers at the 1998 Davos symposium. But his paper at a World Bank Development Conference in 1990 advocated a 50% uniform external tariff, rather than variegated levels of tariff, and was criticized by discussants for the major bias involved. According to the proceedings of that conference, "Dornbusch cautioned against excessive trade liberalization. He noted that it is one thing to liberalize imports of capital goods and intermediate goods, but Milky Way candy bars are a high-gross item in the Mexican imports, for example, and no one would argue that they are essential to growth strategy. Hence a 50% uniform tariff may go halfway toward opening trade; it introduces the notion of competition but avoids the risk of having to cut wages to pay for non-essential imports". When should countries liberalize? The report of the World Bank conference says: "Dornbusch cited as impressive the 1958 liberalization in the Federal Republic of Germany, which took place at a time of a domestic boom and current account surplus. That is the golden time to liberalize, he argued, because 'you can pay for it and you want the [imported] resources.'" Dornbusch concluded that one might like to liberalize earlier, but "if you can't pay for it, don't risk the inflation [and macroeconomic instability] that would come from an exchange rate collapse." US academic Prof. Jagdish Bhagwati, a free trade ideologue, pushed the trade liberalization concept and vigorously lobbied the government in New Delhi before Punta Del Este to agree to the launching of the new trade round, with services and intellectual property issues. After the recent financial crisis and witnessing the effects of capital liberalization, he has changed his views. And in some recent writings and speeches, he has been quite critical of the trading system's distortion by TRIPS and so on. As the major developing countries, and their finance and trade and economic officials and ministers, begin or attempt to dialogue with the G7, at the Fund/Bank semi-annual meetings and the November Seattle Ministerial of the WTO, they might do well to ponder on the past, lest they be forced to repeat it. (SUNS4373) The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.
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