by Chakravarthi Raghavan

Bangkok 17 Feb 2000 -- The tenth session of the UN Conference on Trade and Development is witnessing the beginning of a new process, a senior official suggested Thursday.

At a press conference dealing with the Asian financial crisis (on which there was a host-country event on the crisis in Thailand and the way forward), the UNCTAD Chief Economist, Yilmaz Akyuz was asked how he saw the meeting and the shape it was taking.

Akyuz said that for the first time, UNCTAD was interacting with civil society. There was an intention to engage them in debate, and this was very positive. He hoped it would continue. He noted in this connection the outcome of the NGO caucus and the documents the NGOs presented to the plenary, where they wanted UNCTAD to become engaged in some important areas and provide both analytical inputs as well as a forum for discussions and negotiations.

Unlike earlier conferences, where there were some serious problems between the industrialized and developing countries on trade matters, at this meeting there was much less confrontation.

Despite the debacle at Seattle, or may be because of it, the meeting has been peaceful and quiet.

People came here with a lot of frustration arising out of the Seattle failure. Governments here, and even the Bretton Woods Institutions, were looking for new ideas and processes. And the NGOs pushed for UNCTAD playing a bigger role than it did now, and for more than acceptable to the major powers. But the search for new identity evident in all international organizations was evident at the conference.

On the issue of the relative roles of domestic and international policies and programmes, Akyuz said there were some issues that were global and could only be addressed globally.

The problems of international finance, capital flows and volatility of markets was a global one, and could not be addressed nationally.

Similarly, only global actions can deal with problems faced by developing countries in the arena of barriers to their exports -- such as in textiles and clothing, agricultural products etc.

This did not mean that there were not areas where developing countries need to take domestic actions.

But UNCTAD had always felt that developing countries would benefit from an organization with clear rules. But if international organizations do not have clear rules, and rules based on equity, then people would lose faith in the system and this was in no one's interests. This was why as long ago as 1997, UNCTAD (in its Trade and Development Report) had raised some policy issues relating to globalization, had pointed out that globalization was not working to lift all boats, and that this would create a backlash not only in developing countries, but industrial countries too.

Developing countries could not be asked to integrate themselves into the global market, if they cannot export to that market. And this was a global issue, not a national one.

Similarly, in the area of finance, UNCTAD had advocated capital controls, as a second-best policy for developing countries, since the first-best, that of global actions to deal with volatility and other elements did not seem feasible now.

National capital controls, on inflows and outflows, had some costs: it put up the costs of borrowing. But this cost was better than getting funds and expanding the economy and creating assets, only to find much of it lost as a result of a financial crisis as happened in Thailand and elsewhere in Asia.

The Thai experience had clearly shown that it was not state intervention and controls and regulation that had created the crisis but lack of it.

On the steps being taken in the countries, and the prospects of the recovery, Akyuz stressed that it was difficult to predict whether the recovery now taking place was sustainable or how long it would last. Before the crisis, Thailand was growing at a 5-6% rate, but with a current account deficit of about 8% of the GDP. Could it grow again at the same rate as in the past, without a current account deficit? Or how could the deficit be financed in a sustainable way? Due to the devaluation of the Baht, Thailand was now exporting to the United States. If the US economy slows down, as most people expect, would Japan and Europe be able to replace the US?

On the question of the restructuring of their internal banking and other sectors, and dealing with the problem of the non-performing assets, Akyuz thought that Korea and Malaysia had gone much farther down the road to deal with these problems than Thailand, which was just beginning to tackle them.

As a whole, Thailand and other economies recovering from the crisis still face vulnerability because of external factors. It was difficult to say whether this vulnerability could be overcome and whether the recovery was sustainable. Akyuz was asked about UNCTAD's advice to developing countries, as a second-best solution, to retain controls on inflows and outflows of capital, and not undertake capital account liberalization or opening up capital accounts, and how this would fit in with the drive at the WTO in services negotiations (being launched) on further financial sector liberalization, particularly after recent panel rulings have made the safeguards available for balance-of-payments purposes illusory?

Akyuz responded that UNCTAD did not draw a dividing line on these matters between what was being done at the IMF and that at WTO in terms of financial services negotiations. "This is why we have cautioned developing countries against arrangements at the WTO in terms of financial services accord that would de facto result in the openness of their capital and financial markets." (SUNS4609)

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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