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Date: Tue, 29 Sep 1998 19:47:31 -0400 (EDT)
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From: Robert Weissman <rob@essential.org>
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Martin to call for new rules to check global money flight

By Giles Gherson and Eric Beauchesne, Southam Newspapers, The Vancouver Sun, 29 September 1998

OTTAWA—Declaring the time for talk over, Paul Martin will today in a major speech to Commonwealth finance ministers in Ottawa, call for closer supervision of international banks and new rules to check the destabilizing global flight of money.

The finance minister will then take the Canadian action plan to arrest spreading global financial turmoil to this weekend’s G 7 finance ministers’ meeting in Washington, where he hopes enough of a consensus will be forged to start working on implementation.

Martin joins a mounting international call for stricter regulation and supervision of freewheeling global capital flows that can bring a tidal wave of prosperity to developing economies, but pull out at a whiff of trouble, leaving behind economic mayhem.

Here are the main features of Martin’s blueprint to restore international financial stability:

Advocates contend that open borders attract foreign investment, but Martin says that developing countries may need continued capital controls to protect them from economic instability caused by speculative inflows and outflows of money.

Such an in and out stampede of foreign capital has characterized the financial crisis that spread this year from Asia to Russia and now South America.

A $45 billion Cdn bailout of Brazil is being cobbled together by the IMF and the U.S. administration aimed at preventing a catastrophic devaluation of the currency as nervous international lenders rush out.

A Brazilian collapse would destabilize South America and add a fresh threat to the continuing U.S. economic expansion, in turn jeopardizing Canada’s slowing economy.

The need to have some way to delay international banks pulling money out of countries encountering financial difficulties was made evident last Christmas, when the G 7 finance ministers mounted an extraordinary behind the scenes campaign to pressure international banks to roll over loans to South Korea rather than withdraw funds. The coordinated G 7 action narrowly averted a collapse of the South Korean economy.

Martin said Monday it will take time to convince some other industrial countries of the wisdom of wiping out much of remaining Third World debt.

It’s obviously going to take international cooperation to arrive at this point, he told a coalition of social and environmental activist groups that is pushing the industrial countries to forgive the debts of the world’s poorest nations and for the introduction of a tax on currency trading.

If such a system had been in place, Martin said, the bad borrowing and lending practices of banks in some Asian and developed countries whic= h sparked the Asian crisis and in turn the volatility in world money markets, on which speculators prey, would never have occurred.