Bigger voices join opposition to ‘law of the jungle’

By Abid Aslam, IPS, Asia Times, 2 October 1999

WASHINGTON—The International Monetary Fund (IMF) and the World Bank wound up their annual meetings Thursday amid renewed resistance to rapid investment liberalization and a global economic agenda seen as dominated by rich countries.

The law of the jungle must be abandoned, Xiang Huaicheng, World Bank governor for the People’s Republic of China, told the 182-nation gathering of economic leaders. Globalization and integration will not be sustainable if they benefit only a few.

IMF and World Bank governors have become accustomed to such statements from China and Malaysia, but this week Japan and Russia joined the rebellion. The use of non-standard interventions, such as those made by Hong Kong and Malaysian authorities . . . may be necessary in special circumstances, Bank of Japan Governor Masaru Hayami said. His comments were seen by some officials as an unexpectedly strong defense of actions taken in defiance of US and IMF wishes.

Russian Finance Minister Viktor Khristenko, in a statement released during the meeting, urged prudential controls of capital flows, especially short-term ones.

Other delegates challenged rich countries to shut down aggressive efforts to open up Third World markets for their investors—and instead to open their markets for exports from developing countries. Those sentiments were echoed at the United Nations and the Organization for Economic Cooperation and Development, setting the stage for upcoming negotiations of the World Trade Organization (WTO).

Malaysian Deputy Finance Minister Mustapha Mohammed railed against the absence of prudential rules to guide the profit-maximizing behavior of owners of capital, [which] has significantly negated much of the benefits of free capital flows.

Trade liberalization had been accompanied by rules on market opening measures and procedures for dispute settlement but there were no regulations to protect small economies from the predatory tendencies of large market players, Mustapha said.

As a result, he added, the global financial system clearly does not provide a level playing field, as large players can effectively corner and manipulate small emerging markets with impunity.

Russian officials noted that they had eased most controls on capital in an effort to build a market economy—only to see their compatriots pull their money out of the country at a rate of about $1 billion per month. High-interest sovereign bonds had attracted foreign investment but collapsed last year, when the government devalued the ruble and defaulted on domestic debt.

There were risks, said one official. We were not prepared but they [the IMF and Western governments] did not prepare us. We had corruption; but look at the newspapers, were not they [Western banks] also corrupt?

South Korea’s IMF governor, Bong-Kyun Kang, called for stepped-up international efforts for improved monitoring and regulation of hedge funds to minimize their disruptive effects on emerging market economies.

Japan’s Hayami voiced his support and called for private-sector involvement in preventing and repairing future financial crises. The continued use of public funds to bail out private investors is not viable and invites moral hazard, he argued.

Efforts to bail in private investors have stalled, as have proposals for a stay of litigation amendment to the IMF’s Articles of Agreement, which would prevent individual creditors from derailing sovereign debt restructurings, such as that under way in Ecuador.

The United States opposed the amendment on grounds that it in effect would invoke another clause allowing capital controls—which the US government also opposed. Thus, the IMF and most members restricted themselves to debating the proper pace and sequence of liberalization.

Even within that constricted realm of policy options, the World Bank and IMF could do more to help countries to prepare themselves for open financial markets, Australian Treasurer Peter Costello declared.

Some hopeful participants in global financial markets, however, admonished the Bretton Woods institutions to resist further politicization.

The bank and fund, established to assist member states, must observe the distinction between offering advisory views and dictating a series of inflexible instructions to developing countries with a view to putting their economic house in order, said Hossein Namazi, Iran’s World Bank governor.

Mohamed Bait Elmal, Libyan governor for the Bank, feared that the promotion of globalization as the freedom of movement of goods, services, labor, capital and information will lead to monopolization by a few countries and corporations of international trade in goods and services and weaken developing economies in the absence of proper regulation.

The World Bank’s and IMF’s job was to advise member countries on how best to secure their own interests in the global economy, he added. Consequently, their approach must be characterized by absolute professional objectivity removed from any political influences.

Complaints about the world economy’s uneven playing field also featured prominently this week at the UN General Assembly in New York , where Malaysian Prime Minister Mahathir Mohammed told investors that his government would further ease its year-old capital controls only after world leaders heed calls to rein in currency speculators. We will not lift our selective controls until the threat is removed, Mahathir declared.

The IMF, which initially joined a US-led political and media offensive against Malaysia’s actions, admitted in a report this month that the controls had helped to shield and revive the economy.

Third World delegates also voiced opposition to rapid liberalization in Paris last week, during an international conference on investment policies organized by the rich nations’ Organization for Economic Cooperation and Development (OECD). The conference was to have marked a new beginning for the 29-member OECD after its plans to conclude the Multilateral Agreement on Investment were thwarted earlier this year.

Industrial countries are taking their fight for a covenant on investors’ rights to a new front: the WTO, which is slated to launch a new round of world trade negotiations in Seattle at the end of November.

WTO Director-General Mike Moore, in Washington for the World Bank-IMF meetings, urged industrialized countries to end all tariff barriers against products from the poorest countries. He wasn’t asking much, he told delegates, because this would represent just 0.5 percent of world trade.