Tobin tax, financial reforms to avert crises, says forum

by Mario Osava

Porto Alegre (Brazil), 29 Jan 2001 (IPS) -- Financial globalization, which left the world hostage to a string of crises, has made it necessary to adopt a series of measures to ward off future meltdowns, correct imbalances and fuel the development of poor countries, participants at the World Social Forum taking place in this southern Brazilian city have agreed.

A tariff on international flows of speculative capital, known as the Tobin Tax, and forgiveness of the foreign debt of poor countries were the principal measures defended by the thousands of representatives of primarily left-leaning non-governmental, social and political groupings from more than 120 countries meeting here 25-30 January.

The Porto Alegre gathering is serving as a sort of counterbalance to the World Economic Forum running concurrently in the Swiss ski resort city of Davos, where corporate executives, financiers and government leaders are discussing policies aimed at deepening the globalization process.

But Brazilian economist Luciano Coutinho, who outlined the most dramatic analysis of the threats to the global economy, said the 0.1-0.5% tax on international financial transactions proposed by US Nobel laureate in economy James H. Tobin to tame rapid international capital flows and protect poor nations from global market crises was “insufficient.”

He also said it would not be easy to get the world’s “heterogeneous and divided” developing countries to unite to demand a write-off of their debts, since many governments in the developing South are proponents of neoliberal policies and aligned with the international financial market.

Internationally traded stocks and bonds have increased threefold in each of the past two decades, to the current total of $60 trillion, while daily exchange rate transactions amount to $2 trillion, surpassing the intervention capacity of the central banks of rich countries, which hold combined reserves of $750 billion, underlined Coutinho, an economist at the University of Campinas, near Sao Paulo.

The imminent risk today is an abrupt fall of the dollar due to the bulky US trade deficit, he said, pointing out that “we depend on monetary authorities with limited power to stave off a disaster of unforeseeable proportions.”

The risks have increased to an extreme with the mushrooming of “derivative” funds, aimed at boosting returns in high-risk speculative operations in which up to 40 times the capital invested is put at stake, he added.

Against that backdrop, with developing countries made vulnerable by their dependence on foreign capital, the Tobin Tax should be applied, but along with a dozen additional measures, recommended Coutinho.

Among the proposed measures are the declaration of a moratorium on the foreign debt of countries experiencing exchange rate crises, a banning or reduction of derivative funds, the creation of a committee for the central banks of rich countries to work together and ban “wild flotations” of major currencies, and reforms of the International Monetary Fund (IMF) to make it more flexible and less orthodox.

In addition, said Coutinho, reducing the vulnerability of the developing South also requires mechanisms aimed at shoring up commodity prices, slashing farm subsidies in Europe and the United States, and multilateral loans with interest rates linked to the prices of the main exports of developing countries.

World Bank interest rates, although nominally low, stood at 15-18% a year over the past decade - too high “if we take into account commodity prices, the currency with which poor countries pay off their foreign debts,” since that is the source of their foreign exchange, he argued.

Eric Toussaint, chairman of the Belgian Committee for the Abolition of Third World Debt, admitted the need for a number of “convergent” measures to overcome the grave financial distortions that aggravate global inequalities and social problems in the developing South.

He underscored that the Tobin tax, as well as the write-off of the “foreign debt, which has already been paid off several times over,” are demanded by sectors that have great capacity for popular mobilisation and which could bring about the shifts in the lineup of political forces necessary for these and other complementary measures to be adopted.

The defenders of the tax, like Canada’s Halifax Initiative, estimate that $150-300 billion a year could be collected and earmarked for social and environmental programmes - sufficient, they say, to eliminate extreme poverty in the world in 10 years.

The movement for the adoption of the Tobin tax has ballooned in the past few years, said Halifax coordinator Robin Round, who pointed out that the parliaments of several countries have even begun to discuss the measure.

The Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC), one of the groups most active in organising the Porto Alegre meet, already has branches in 20 countries, according to its president in France, Bernard Cassen, who is also director of the newspaper “Le Monde Diplomatique”.

In a live debate by satellite organised by an independent French media group between participants at the World Economic Forum in Davos and the World Social Forum in Porto Alegre on Sunday, international financier George Soros said he backed the Tobin tax.

Cassen challenged the Davos panel, which also included Swedish entrepreneur Bjorn Edlund and United Nations officials John Ruggie and Mark Malloch, to convince their business and banking colleagues to sign a document in favour of the tax on financial transactions, debt forgiveness and a ban on tax havens.

Until such measures are adopted, the social and political movements and groups meeting in Porto Alegre will continue trying to make them possible, holding mass demonstrations aimed at modifying the lineup of forces, said Cassen, in a reference to the mass protests that have stormed meetings of the IMF, the World Bank and the World Trade Organisation (WTO) over the past two years. – SUNS4825