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Canada & the UN > Newton Bowles Reports
ANNEX 4 Failing Currencies, Recriminations, Who's to
Blame? Opening Up Economies During the recent annual meeting of the IMF and the World Bank in Hong Kong this brought Prime Minister Mahathir of Malaysia to the accusation that the great powers conspired against Asian countries by pressing them to pen up their markets and then manipulating their currencies to knock them off as competitors. Most forms of currency trading, in Mahathir's view, are "unnecessary, unproductive and immoral." In his view currency trading should be limited to financing real commodity trade and other forms of currency trading should be made illegal. This was considered an extreme view, but quite a few other Asian politicians made clear that they are planning to slow, or even reverse, the liberalization that has opened their economies to global forces, because that process had given too much room to a tendency for markets to overreact and to speculate. There was recognition that sound policies and domestic reforms would be required, but there was also the fear the these would not be a guarantee against shifts in international market sentiments, suggesting that the so-called Asian miracle is a mirage, withdrawing the capital which had underpinned the development so far and manipulating currencies. There are many reasons to judge markets as unpredictable, arbitrary or even manipulated. No wonder that many developing countries resist pressure to open their markets further. I do not believe in a conspiracy theory as put forward by Prime Minister Mahathir. But international pressure exists. The US, for instance, is now calling for further liberalization of the Chinese economy if it is to achieve entry into the World Trade Organization. As US Deputy Treasury Secretary Larry Summers recently declared, this can take place only if China accepts the norms of openness in the international system. This would also include agreement to roll back barriers in financial services: "The process of market opening is like peeling an onion," Summers said. "It happens slowly, layer by layer, and there are plenty of tears involved." These tears would not be for nothing, according to advocates of globalization. Opening up markets to foreign banks, securities and insurance companies and money managers would not enlarge the financial-sector problems in developing countries but would lead to a more uniform and transparent framework, increasing global investment flows and decreasing volatility in emerging markets. In the post-Communist, post-statist world of the 1990s, it is said that deregulation and market liberalization will, after an initial transition period, produce only positive results for national economies and for ordinary people. This would be true not only for transport and communication, including telecommunications and informatics, and for trade in general, but also for finance. "Financial markets don't just oil the wheels of economic growth. They are the wheels," in the words of Lawrence Summers. And US Treasury Secretary Robert Rubin in Hong Kong referred to the agglomeration of liberal trading and investment activities as the emblems of a "new economy." For if you limit the flow of capital you run the risk of stopping the flow of technology with it and that would keep you out of business in this knowledge-based global society characterized by lifelong learning, not for fun but in order to survive, and by creative destruction not only of enterprises but of knowledge bodies, data banks and information flows. Within the framework of IMF and WTO, developing countries are bullied into the open, integrated global economy. The more the demands of the global economy will be met, the stronger the world financial system. That will be advantageous to the providers of money and capital, who then can make their decisions on the direction and allocation of money, in the short as well as in the long run, on a daily and, as a matter of fact, minute-to-minute basis, 24 hours around the clock, without having to bother about different rules and regulations in different countries. Will it be advantageous to those countries too? It remains to be seen. Economically weaker nations are quite concerned that they will become easy targets for international financial speculation, in particular because the international rules themselves set by governments in international meetings and conferences on the world economy-- from Singapore to Hong Kong-- still seem to be dictated by the Group of 7 developed nations and not aimed at any form of protection of national economies against shocks or protection of people against poverty and unemployment. There are no rules or even codes of conduct for banks and other financial institutions, rather than: "Feel free, compete and get bigger, at any cost." The only rule next to "open up your economy to international competition" is "get your fundamentals right." That is necessary indeed, but those fundamentals themselves are defined in terms of macro-finance: the gap in the government budget, the rate of inflation, and not in terms of a fundamental equilibrium between haves and have-nots, which is not only an economic but also a social, a political and a human imperative for the survival of nations. Is there an alternative? Globalization is inevitable. It is also believed to be unmanageable. In the words of Thomas Friedman, in last week's New York Times, "Globalization isn't a choice. It's a reality.. and no one is in charge-- not George Soros, not 'great powers'... [They] didn't start it, [they] can't stop it... You keep looking for someone to complain to, someone to take the heat off your markets. Well guess what... there's no one at the other end of the phone. The global market today is an electronic herd of anonymous stock, bond and currency traders sitting behind computer screens. The members of this herd live everywhere there is a trading floor... everywhere that someone with a computer screen and modem can buy and sell currencies, stocks and bonds... The electronic herd cuts no one any slack. It does not recognize anyone's unique circumstances. The herd only recognizes its own rules... [When] you [start] to break the rules... the herd sells you out... [stampedes] you and [leaves] you as electronic roadkill... [When] that happens you don't ask the herd for mercy, you don't denounce the herd, you just get up, dust yourself off and get back with the flow of the herd. Sure, this is unfair... [but] there's nobody to call." |
