ECONOMY: Frei, Gonzalez and Santer in Favour of Interventionism

By Tito Drago Reprint | | Print |

Tito Drago

MADRID, Mar 10 1995 (IPS) - The monetary storms sweeping world exchange markets and shaking national economies led Chilean President Eduardo Frei, European Union leader Jacques Santer and Spain’s prime minister Felipe Gonzalez to call for government intervention.

Although all three have implemented neoliberal economic policies in their own countries, they coincided this week in demanding international action against monetary speculation.

Mexico’s financial crisis and the so-called tequila effect which has spread throughout the world without regard for distinctions such as north or south, developed or developing, has unleashed such a commotion among economies and uncertainty among governments that reactions are beginning to be voiced.

Frei, ending a two-day visit to Spain on Friday, said that regardless of countries like Chile working to keep their economies in order, “the international ups and downs of currencies can destroy them.”

The Chilean president stressed the lack of sufficient mechanisms for dealing with complex situations such as that which occurred in Mexico and abroad.

Santer, in Brussels, agreed with Frei’s diagnosis and called on “international institutions…to promote rules for international monetary markets that attack the causes and not only effects of the monetary crisis.”

Gonzalez, who spoke to the European socialists gathered in Barcelona, said certain playing rules regarding the free circulation of capital will eventually win out, because “the jungle in which we are living in the exchange markets cannot continue indefinitely.”

Spain’s leader pointed out that a billion dollars a day are moved in global markets, and that if a mere five percent is concentrated in one country, its economy – no matter how powerful – can be weakened and its reserves – no matter how abundant – depleted.

Indeed, the daily flows of global exchange markets are equivalent to two and a half times Spain’s annual Gross Domestic Product (GDP).

But what could bring a re-thinking of neoliberal policies in international finances is that the effects of the “monetary storms” are no longer limited to less-developed countries.

The anxiety felt by the majority of European currencies this week, following the devaluation of the Spanish peseta and the Portuguese escudo, show that not even the industrialised north can escape the instability caused by speculative capital.

Of the billion dollars a day that moves throughout exchange markets, only 20 percent represents real commercial transactions: the rest is pure financial movement.

Globalisation, says Spanish economist Ernesto Mata, financial manager of a powerful electric company, has caused markets to be increasingly volatile, “with the consequent increase of risk and uncertainty.”

Against that risk and uncertainty, Frei, Santer and Gonzalez are demanding action by governments and international institutions, without specifying what could be done.

One answer was proposed by Samir Amin, one of the “Third World’s” most reknowned economists, in an article published in the latest issue of the left-leaning Spanish magazine ‘El Viejo Topo’.

Amin suggests that the International Monetary Fund become “a true global central bank, with the power to issue a real currency that would take the place of the dollar standard.”

In his opinion, this would ensure some degree of stability in exchange rates and would provide developing countries the liquidity they need.

However, U.S. treasury secretary Robert Rubin said this week that his government “will do all that is necessary to defend the supremacy of the dollar in international markets,” adding that this will be done with the collaboration of the other members of the Group of Seven most industrialised countries.

Another of Amin’s recommendations is to transform the World Bank into a fund which would collect surplus capital from countries such as Japan and Germany, “not to lend it to the United States but rather to the Third World,” in need of liquidity and capital for development.

But signs are beginning to be seen in Europe and Latin America of an interest in seeking a middle route, somewhere between Amin’s proposals of global regulation of international monetary systems and the U.S. stance in defence of its currency’s position.

The question is whether those changes will arrive in time to save the economies of the rest of Latin America and the developing world from getting drunk on the “tequila effect” and becoming ungovernable.