Prague, 18 November l997 (RFE/RL) -- The meeting of Asian and Western finance officials in Manila today and tomorrow represents an important moment in the international effort to help South East Asia out of economic crisis.
The officials, including representatives of the International Monetary Fund and World Bank, have been discussing creation of special financial arrangements to help the struggling Asian nations in the short term. They have also been discussing creation of a surveillance group to monitor economic policies across the region and to act against possible causes of financial instability.
It's that last item which gives a global dimension to the Manila meeting. The talks thus represent a step towards construction of a framework designed to enable the new globalized economic order to deliver maximum benefit to the maximum number of people.
The international financial system was shaken by the wave of extreme volatility which raced through the world's stock exchanges in late October: that was a salutary warning of the dangers present in an increasingly inter-dependent world economy. On face value, it seems absurd that the overexposure of banks in Thailand to unwise property projects could affect the pension prospects of people as far away as the United States or Europe. But the October events proved that they can.
Since then, there have been increasing calls for what amounts to brakes on the globalization process. French President Jacques Chirac has just (Nov. 17) publicly agreed with Malaysian Prime Minister Mahathir Mohammad's call for rules to be imposed on foreign-currency speculators. Speaking in Malaysia, Chirac said globalization has its down sides, and that ways must be found to avoid the law of the jungle.
Such attitudes are gaining ground, mainly among developing countries, and also among commentators who point to the possibilities for social disruption inherent in an open economic order. Even in the U.S., the Congress recently refused to grant President Bill Clinton broad authority to negotiate foreign-trade agreements. This is seen in part as based on concern for the possible impact of such agreements on U.S. jobs, companies and working conditions.
Governments and legislators are rightly concerned with the political and social consequences of their actions and decisions, but economists and bankers are adamant that economic problems need answers on the economic level. In other words, the problems appearing in the globalization process can be fixed by the application of economic rather than political remedies.
The approach of the economists is summed up by the head of research at the U.S.-based Chase Manahattan Bank in London, Robin Marshall. He told RFE/RL that free markets impose strict discipline on governments to follow good economic policies. He says it's not a matter of wicked speculators unfairly attacking the currencies of South East Asia. The problem is that the region had too much success in attracting capital while its financial system was not sufficiently developed to cope with such inflows, and was under-supervised and under-regulated. The result was that money flowed into unsound projects.
Marshall questions whether bodies like the IMF did as good a job as possible in alerting the countries concerned about the consequences of their unhealthy economic policies. The IMF did issue warnings in advance, but considering that the whole world has since felt the affects of the Asian crisis, Marshall says perhaps louder alarm bells were necessary.
He points to the possibility of creating new supra-national bodies which can help keep countries on the "straight and narrow" path of virtue in the globalized economy. Apart from bodies like the IMF, he points to existing agencies which can serve as models, like the Bank of International Settlements. The BIS ensures that banks of all 29 member states in the OECD (Organization for Economic Cooperation and Development) maintain a safe ratio of reserves in proportion to the level of their loans.
He suggests international regulatory concepts like this can be further developed so that the world can enjoy the benefits of the global market without so many of the fears.
The Manila meeting, of course, has been talking about just such a supra-national panel to keep an eye open for bad policies. Other international meetings are coming which will debate similar issues. There's the meeting in Vancouver this month (Nov. 24) of Pacific Rim leaders. Then there's a conference in Kuala Lumpur (Dec. 1) of Asian finance ministers and the IMF, at which proposals for global regulations will be discussed.
Such meetings add to the common stock of wisdom about how to deal with the new phenomenon of globalization. They're necessary if disillusionment is not to undermine the hopes that an increasingly integrated world economy will in the end provide a better life for tens of millions of people.