By Marcela Valente
BUENOS AIRES, Nov 12 1997 (IPS)

Developing countries need to maintain a solid and financially-balanced economy otherwise they will be swamped by the turbulence of global market forces, according to economist Aldo Ferrer.

In an interview with IPS, Ferrer – author of a “History of Globalization,” maintained that the stock market crisis, which began in Asia and deepened in the past two weeks with major dips in the markets of Argentina and Brasil “is eminently speculative.”

In his three-volume work, Ferrer describes how the widening of markets and the international transfer of resources generate formidable expansionary pressures for production and jobs, particularly when markets aren’t totally unprotected.

“Without a doubt, this new crisis is a demonstration of the fundamentalist vision that dominates globalization,” he told IPS. Ferrer was referring to the idea that national economies have disappeared and decisions are being taken on a supranational and financial level.

In his opinion, these “fundamentalist views” overlook the fact that in Latin America 90 percent of production is produced for the internal market and that eight out of every 10 workers is employed in fulfilling local demand,”in their respective countries.

“For this reason, he favors “governing globalization,” in other words putting in place international policies appropriate to each economy and applying international controls to neutralize the harmful effects of the free movement of finance capital.

“When the markets spontaneously do not produce the expected results, public action is the key,” he said, adding that global de-regulation of financial transactions has produced as a consequence a system which is “uncontrolled and unpredictable.”

The wave of devaluations in South East Asia in recent months endangered the economy of Hong Kong that, for the past 12 years had maintained a system of monetary convertability. The former British colony resisted devaluation but Hong Kong stocks have fallen over the last three weeks.

The crash in Asia provoked market losses in Europe and the United States as well as in Latin America. In the latter area, the epicenter of the crisis has been Brazil and, in lesser measure, Argentina, though it is more solid after the recession that it had to face in 1995 as a result of the so-called “tequila effect” in Mexico, Ferrer pointed out.

Devaluation in Argentina in 1994 provoked capital flight to such a degree that the country’s economy went into shock almost to the degree of Mexico, who at least could manage their upset with U.S. financial capital.

The latest crisis found Argentina with greater reserves and a more concentrated banking sector but the blows that Brazil is weathering are raising fears that even without a devaluation there, the expected recession could affect Argentina’s external sales – 30 percent of which go to Brasil.

In Argentina, the government had predicted a commercial deficit of 2 billion dollars for this year, but this month it is anticipated that the imbalance will be double their original estimate, an imbalance which will worsen if Brasil restricts buying.

For Ferrer, the ex-minister of economy, the current crisis in Asia was an adjustment that followed a period of over-valuing of goods in Hong Kong, but he noted that these types of movements should not affect the real economy, except in cases of very fragile economies.

In this category, economies with great trade imbalances, fiscal accounts in the red and overvalued money are Argentina, Brasil, Thailand. A continuous drop in the stock market could very well create a crisis of confidence and a flight of capital, he said.

“What is complicated in these cases is not just the fall in the stock exchange because Wall Street in one day fell 20 percent in 1987 and the effect on the economy was slight,” he stressed. “The problem is that where a country is vulnerable and in need of external funds for internal financing, capital flight can be fatal.”

By contrast he noted that Chile, with its accounts in order, could weather the stock movements and capital flows with less risk and danger than their South American neighbors. Chile, further, controls the inflow of capital, as does Colombia.

Ferrer says it is necessary that Japan, the U.S. and the European Union consider the application of controls for capital transfers that are speculative rather than productive in nature.

But as the developed countries, with the support of the International Monetary FUnd and the World Bank, continue promoting financial deregulation, developing countries are left with the only option of defending themselves by keeping their houses in order, he said.

Finally, Ferrer agreed with economist Hazel Henderson, who maintains that politicians cannot keep claiming that they are victims of globalization, since it was they who promoted the deregulation of markets.

Both Henderson and Ferrer considered it imperative to search for mechanisms to control financial capital, which, according to the economist, moves some two billion dollars daily worldwide. (FIN/IPS/mv/dg/if/lv/mk/97)

Excerpt: