Davos, Switzerland; 29 January 1999 (RFE/RL) -- Black limousines, police with machine guns, snow falling on the buildings clustered in the Alpine village. It's Davos, cradled deep in the Swiss mountains, and the scene of an annual meeting of the World Economic Forum -- a week-long conference which brings together some 2,000 of the globe's most powerful people in politics and business.
The forum opened last tonight. Among those attending this year are 40 heads of state and government, and 1,000 chief executives of leading corporations. The Davos "club" is an exclusive one, and its purpose is to bring together those with power and influence so that they can share their ideas for the common good. Founded as a private initiative almost 30 years ago by Swiss professor Klaus Schwab, the forum is supportive of the process called globalization, the integration of national economies into the international economy.
This year's meeting is dedicated to the theme of responsibly managing the impact of globalization - a timely theme considering the chaos which has developed in the world economy in the past 18 months. Following the fall of the Asian tiger economies, and the Russian financial collapse, worries now center on Latin America. The region's biggest economy, Brazil, is under pressure amid the continuing decline of the national currency, the real. In a bid to stop the contagious insecurity spreading to its own economy, Brazil's neighbor Argentina is considering the highly unusual step of replacing its own weak currency, the peso, with the U.S. dollar.
Apart from Latin America, the other major concerns of economic analysts are China and Japan. China has long promised not to devalue the renminbi, even though its rejection of the step is making it lose competitiveness with its Asian neighbors. Within the past week, however, doubts have arisen about whether Beijing will be able to avoid a devaluation -- a step which would add a serious extra element of instability to the world scene. As to Japan, which is by far the biggest Asian economy, it remains mired in recession and is thus unable to act as the economic locomotive to help pull Asia back to health.
Given this scenario, there is growing recognition that globalization as an economic phenomenon must be handled carefully if it is not to lose the support of the political world. U.S. Vice President Al Gore says in remarks issued in a forum publication, and timed to coincide with this year's gathering, that there have been too many financial crises in the past few years at unacceptable cost to ordinary people. Gore says that if the experts and those in power do not find a way of doing things better, then a truly global financial market will not develop next century.
Gore says not all the answers are clear as yet. But he says that broad consensus on three of the most important reforms is emerging. Firstly, there must be increased transparency in markets, based on generally accepted accounting principles, as well as clear rules of information disclosure imposed on companies. Secondly, domestic market systems must be strengthened, through such measures as bank restructuring, and better risk management. Thirdly, there must be better mechanisms to help countries begin to struggle with domestic problems which can develop into international problems. In another analysis of the state of the world, the chief economist of the Deutsche Bank in Japan, Ken Courtis, points to three dangers. Speaking to journalists at Davos, he said that overcapacity is every where in the world. For instance world demand for motor vehicles is 44 million units per year, while global production capacity is 60 million.
He says that in addition, there are high debt levels everywhere. For instance, the 500 leading banks of the developed world have invested thousand of thousands of millions of dollars in emerging markets, with most of the money financed by debt. The investment sums exceed by a wide margin the net worth of the banks, so that if the proportion of write-offs reached even half the banks' net worth, the world would face an extremely dangerous credit squeeze.
Further, says Courtis, there is slow world growth, including negative figures in Asia and low figures in Europe. While growth is still strong in the United States, it is dependent on consumer spending, and American consumers have had a negative savings rate since last September.
Courtis says that taken together, these factors have led central bankers around the world to engage in a "spectacular" reflation effort -- that is, an effort to invigorate growth. He notes that since October, there have been a total of 74 interest rate cuts around the world. He says that if everyone sticks to this course, it should stimulate enough growth in the core economies to possibly absorb the overcapacity and remove the risk of deflation -- thus removing an enormous danger from the world.
At the same press conference, another internationally recognized economist, Rudi Dornbusch, a professor of economics at the Massachusetts Institute of Technology, criticized the International Monetary Fund's efforts to assist countries which have fallen into crisis, from Thailand to Russia. He described IMF managing director Michel Camdessus as a monument to the failure of every rescue effort so far. He said the IMF should take bolder steps to help Brazil now, such as supporting the creation of a currency board, a system which has worked well in other countries - including Bulgaria and Argentina. Dornbusch called Brazil's own efforts to control its economic problems amateurish and said a currency board arrangement would be able to return Brazil to growth for the first time in 20 years.
Turning to other countries which are likely to face pressure to devalue their currencies in future, Dornbusch said both Turkey and South Africa are vulnerable. As to Turkey, he said the Turkish authorities always say they know what they are doing, but he said he doubts that.