ECONOMY: G-24 Nations to Examine Impact of Asian Economic Problems

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Jan 23 1998 (IPS) - Ministers of the Group of 24 (G-24), representing the economic developing nations of the South, will meet here next month to analyze the impact of Asia’s financial problems and the management of capital flows to emerging markets.

Hernan Oyarzabal, an official at Venezuela’s Central Bank, said the special session of G-24 countries – scheduled for Feb. 7-9 – also will include the participation of the presidents of the central banks of the regions.

South Africa and Malaysia will be sending observers, he said. Malaysia was one of the protagonists of the financial crisis in Southeast Asia which, since last July, has affected markets all over the world, showing once again the dangerous volatility of short-term capital.

At the headquarters of the International Monetary Fund (IMF) in Washington, Executive Director Michel Camdessus expressed an interest in participating in the group’s meeting – if his travel schedule to Asia allows. At his request, the meeting was scheduled over weekend, Oyarzabal said.

Ministers also will examine a series of issues that are currently under discussion at the IMF and other multilateral agencies, aimed at strengthening the financial markets in the context of globalization, he added..

The first aspect is the proposed liberalization of capital flows, which in developing countries are considered to require a series of prior steps, such as the consolidation of markets, improving supervision, taking into account asymmetries and creation of institutional structures to control volatility.

“We must think about ways of doing it, what kinds of mechanisms to establish so that globalization and the integration of financial markets generate benefits, not problems,” said Oyarzabal. Venezuela holds the one-year presidency of the G-24 until April.

The members of the group are Algeria, Argentina, Brazil, Colombia, Congo-Kinshasha, Ivory Coast, Egypt, Ethiopia, the Philippines, Gabon, Ghana, Guatemala, India, Iran, Lebanon, Mexico, Nigeria, Pakistan, Peru, Syria, Sri Lanka, Trinidad-Tobago and Venezuela. Yugoslavia, an original G-24 meber, no longer participates.

The industrialized countries understand that these are not attempts at protectionism, but rather efforts to counteract volatility, ensure the permanence of resources and the “elimination” of crisis factors that could emerge at any given moment, Oyarzabal added. Chile, for example, has implemented laws that punish capital flight, thus neutralizing the negative influence of the short-term investments.

“There are other alternatives, but that is what the group is seeking as a counterbalance to globalization,”, explained Oyarzabal. He added that “industrialized countries are very much aware, after the crisis in Asia, that these phenomena must be prevented, because they too are affected by the volatility.”

It is expected that the spring assembly of the IMF and the World Bank to be held in April, will continue to discuss in depth the issue of liberalizing capital accounts, but no decisions are likely.

“What happened in Asia was a lesson for all of us, for those anxious to see liberalization, and those who opposed it,” said the Venezuelan official, who has been working in the world of multilateral finance for decades.

One available instrument vis-a-vis the movement of capital and the uncertainty in exchange rates are special privileges such as the DEG, the set of the IMF’s 16 currencies which are very stable in relation to the currencies that are used in international transactions.

Oyarzabal did not give his opinion on whether it is too late – as some analysts believe – to establish efficient measures on volatile capital at the global level. But he did say that, in theory, nothing prevents the creation of systems of supervision of finances, banks and stock markets.

“The difficulty is that that requires clear and homogeneous information and the greatest transparency possible, even in the bank accounting system and its clients,” he said.

At the national level, there are mechanisms to find out if a client is absorbing a lot of credit and this generates an alert. But at the international level, there are no equally efficient systems that detect whether there is an excess of loans to one country, he explained.

All these facts, as well as the consequences of globalization and the emergence of new finance and monetary blocs – many of which are still in gestation – have led to the need for a special dialogue between the industrialized North and the developing South.

This will be another issue on the Caracas agenda, according to Aziz Ali Muhammad, a G-24 representative based in Washington, who indicated that the program will include the analysis of a document to be presented at the G-7 Summit (which brings together the seven most industrialized countries), to take place in Great Britain in May.

Oyarzabal did not refer to this issue, but he provide details about other important aspects of the discussions in Caracas, such as the foreign debt, which will be discussed in the context of control mechanisms and the situation of the poorest countries.

Within the framework of the IMF, the renegotiation of those debts was approved, but it has not happened fast enough, and the G- 24 wants to propose formulas to deepen and expedite the measures towards that aim.

“The idea is not just to establish mechanisms to pardon the debt, but rather to strengthen internal policies in order to generate a gradual process of self-sustainable growth,” explained Oyarzabal. He pointed to a proposal put forward by Britain as a good example.

At a meeting of British Commonwealth nations , which took place last September in Mauritius, London proposed a series of measures to expand renegotiation and to get the beneficiaries on board by the year 2000.

Another topic to be analyzed by the financial and monetary authorities of the G-24 will be the issue transparency and how to counteract corruption at the international level. On this point, the meeting will analyze a new agreement within the framework of the Organization for Economic Cooperation and Development (OECD), which brings together the most important economies in the world, and which promotes greater transparency on the part of industrialized nations in their international financial relations.

The new position of the OECD coincides with something that the South has always called for: that corruption not only be perceived from the perspective of those who receive bribes, but those who offer them as well.

“This new symmetry is very promising and we will study what the G-24 can do to support this process of the OECD,” said Oyarzabal.

The issue of the participation of Yugoslavia and whether the group should include any of the Balkan members, as well as the expansion of the group to include others, are also topics that the group will take up.

None of the countries involved in the Asian crisis, for example, are in the group. Neither is China – which acts as an active observer – and nor is South Africa a G-24 member.