FINANCE: North-South Dialogue Towards a New Global System

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Feb 10 1998 (IPS) - The developing South is urging the industrialised North to engage in dialogue towards a new model for the international financial system, adapted to the needs of today’s globalised world and designed to prevent the recurrence of crises such as the one sweeping Asia.

The proposal came out of a three-day extraordinary session of the Group of 24 (G-24) meeting in the Venezuelan capital. The G-24 represents the interests of developing countries in the International Monetary Fund (IMF) and World Bank.

“It is time to create a new paradigm” in the international financial system, said Antonio Casas, the president of the G-24 and Venezuela’s Central Bank, because the model which emerged 52 years ago in Bretton Woods “has systemic defects” and was born to address a reality that differed enormously from today’s.

Lal Jayawardena, the head of Sri Lanka’s Central Bank, said the G-24 concluded that it would be more beneficial for the economies and populations of the world to engage in “a global dialogue” than to push for a series of changes.

The head of Algeria’s Central Bank, Abdelouahab Rezig, underlined that the South believed it was not the time for confrontation, but rather for “harmonious dialogue between industrialised and developing countries,” because the crises generated by the current system had an impact on everyone – including those that arise in the South.

“The Asian crisis has clearly and convincingly demonstrated that the economic activity of developing countries has a decisive influence on the global economy and also affects industrialised countries,” said Casas.

Casas, who presides over the G-24 until April, when the year- long rotating presidency goes to Algeria, said the call for direct dialogue with the governments of industrialised nations was not a vote of mistrust against the work of the IMF and World Bank. “The gravity of the situation has forced us to take this step,” he explained.

IMF Managing Director Michel Camdessus participated in the G-24 meeting Saturday, along with the Secretary-General of the UN Conference on Trade and Development (UNCTAD), Rubens Ricupero, and authorities from the World Bank and other world bodies.

Jayawardena said the Caracas Declaration II which emerged from the three-day gathering marked a juncture as significant for the G- 24 as the statement which arose from the group’s first meeting here in 1972, held in response to the international crisis triggered by the U.S. abandonment of the gold standard.

The origin and effects of the Asian crisis have turned it into the worst debacle for the international financial system since that time, agreed Brazil’s Ricupero and the members of the G-24, which include Algeria, Argentina, Brazil, Colombia, Congo, Egypt, Ethiopia, Gabon, Ghana, Guatemala, India, Iran, Ivory Coast, Lebanon, Mexico, Nigeria, Pakistan, Peru, the Philippines, Sri Lanka, Syria, Trinidad and Tobago and Venezuela. Yugoslavia no longer participates.

“The Asian crisis threatens to generate deflationary influences throughout the world,” says the Declaration.

Casas, meanwhile, called for an end to “short-sighted selfishness,” and urged comprehension that the situation required collective measures in which public and private creditors must actively participate.

Casas stressed the alarm caused by the negative signs in the world economy and trade in the wake of the southeast Asian crisis, especially due to that region having been one of this decade’s main engines of economic growth.

In order to prevent economic slowdown at a global level, “a new architecture for the international financial and monetary system” is needed, Casas maintained.

The Declaration states that “sound macroeconomic policies, transparency in the working of public institutions, and good governance are essential,” adding that the “prime responsibility for development and poverty reduction in the developing world continues to rest with the peoples, institutions and governments of the developing countries themselves.”

Casas said it made no sense to seek someone to blame for the failure to prevent, and later resolve, the crisis in view of the fact that the lessons from previous crises – the 1980s debt crisis in Latin America and the 1994-95 Mexican debacle – were ignored.

The defects are inherent to the system, he contended, adding that “uncertainty remains while confidence is absent, in a situation that highlights the risks of globalisation more than its benefits.”

The G-24’s concrete proposal is the creation of a joint North- South taskforce to study today’s new realities, gauge their implications for the world’s economies and adapt international financial institutions to the new paradigms.

In the declaration, the G-24 says such a review is “urgently” needed. Venezuela’s Willian Larralde was designated as the special coordinator to immediately begin to inform the governments of industrialised countries of the proposal.

Larralde said the Caracas Declaration II would be sent to all industrialised blocs. Current discussions with Great Britain will also be stepped up with the aim of putting the proposal on the agenda of the May summit there of the Group of Seven (G-7) most industrialised countries.

“The G-7 is one of our main objectives, but not the only one. We are not interested in an exclusive dialogue” with that bloc, said Larralde.

Six specific points were laid out in the Declaration for a “wide-ranging review” by a task force on the current state of the world’s financial system.

The first is the need to analyse “the capacities and modalities of the international monetary and development finance institutions to respond in a timely and effective manner to crises induced by large-scale capital movements.”

The Declaration also calls for discussions on “the appropriateness of the conditions prescribed by these institutions to deal with such crises” and “the equitable sharing of post- crisis financial stabilisation between private creditors, borrowers and governments.”

Another element to be debated is the establishment of “more effective surveillance of the policies of major industrialised countries affecting key international monetary and financial variables, including capital flows.”

The task force should also review “the modalities for building domestic social safety-nets as integral elements of stabilisation and adjustment programmes to protect the most vulnerable elements of the population of crisis affected countries.”

Lastly, the G-24 calls for “increased representation and participation of developing countries in the decision-making organs of the international community, to properly reflect the developing countries’ growing influence in the world economy, including the revision of the bases for determining the voting power in international financial institutions.”

African, Asian, Latin American and Caribbean nations have long demanded that their quotas in international lending institutions be increased, in order to give them greater decision-making power, given the fact that 10 countries currently control 54 percent of IMF votes.

The positions that emerged from the G-24 meeting in Caracas will be sent to the spring general assembly of the IMF and World Bank, to be held in April in Washington.