DEVELOPMENT: West Opposes Reform of Global Financial System

By Thalif Deen Reprint | | Print |

Thalif Deen

UNITED NATIONS, Apr 14 1999 (IPS) - Thailand, the first Asian country to be affected by the 1997 Asian economic crisis, is accusing Western nations of derailing attempts to bring about radical changes in the international financial system.

“We have so far failed to overhaul the global financial system because developed nations are opposed to it,” Ambassador Asda Jayanama of Thailand told IPS. “They want us to improve on the existing system, not create new ones.”

Jayanama said there were two proposals now on the table; a new World Financial Organisation to oversee international capital or the creation of a Asian Monetary Fund (AMF) to be structured on the lines of the Washington-based International Monetary Fund (IMF).

But both proposals were being opposed by the United States and other Western nations, according to Jayanama.

Additionally, the proposal for an Asian Monetary Fund – with a initial capital of about 100 billion dollars from Japan – had been shot down both by the U.S. and the IMF, he said.

Asked why they were opposed to it, Jayanama said there was a misconception that the ready availability of financial assistance for countries in crisis would encourage these recipient nations not to undertake reform of their own monetary systems.

What the opponents don’t realise, he said, is that the proposed new Fund was not meant to dole out unrestricted “handouts.” “We all know there is no such thing as a free lunch.”

Moreover, the IMF did not want to lose the power and authority it exercised over Asian countries – as well as all other developing nations – which currently were subject to rigid conditionalities when they borrowed money.

Since mid-1997, South Korea has sought an IMF bailout package of about 58 billion dollars, Indonesia about 43 billion dollars, Thailand about 17.2 billion dollars and the Philippines about 1.0 billion.

Malaysia refused to accept any handouts because it did not want to subject itself to IMF conditions – lowering budget deficits and interest rates, removing state subsidies, and enforcing tighter disclipine in the banking system.

Last week the Bangkok-based UN Economic and Social Commission for Asia and the Pacific (ESCAP) said in its annual survey that new policies were needed at national, regional and international levels to overcome Asia’s ongoing econonmic problems.

“The prevailing credit crunch has to be overcome, the financial sector strengthened, and the corporate structure restructured,” the survey said.

First, “consideration needs to be given to reforming the international financial archictecture and intensifying regional cooperation, including consideration of the establishment of an Asian fund,” ESCAP declared.

Second, in view of the increased frequency and intensity of the crises, caused to a large extent by massive capital movements, the report said there was a need for a new overseeing body for international capital to be called the World Financial Organisation.

This proposed Organisation, it said, should have a specific mandate to monitor all short-term cross-border flows and develop a rule-based system for overseeing, and eventually, regulating international capital flows.

Third, it was important to agree internationally on a set of principles for resolving issues related to debt workouts. The proposed WTO could provide the institutional framework for achieving such agreements.

In January, the UN Economic Commission for Latin America and the Caribbean (ECLAC) also made a strong case for a radical reform of the global financial architecture.

“World events since mid-1997 have made painfully clear that the current international financial system is unable to safeguard the world economy from financial crises of high intensity and frequency and devastating effects,” ECLAC said.

It also argued that the international financial system is an organic whole and any reform must therefore encompass a number of inter-related aspects of international liquidity management, global consistency of macro-economic policies and financial regulation.

These were areas essential to the prevention and management of financial crises, as well as finance for development, and the resolution of outstanding debt issues.

“The rapid spread of the current international financial crisis, from East and South-east Asia to other developing and trasition economies and even to the industrialised world, has already led to statements and decisions by authorities of developed countries, who recognise that it is indeed the most threatening event of its kind in more than half a century,” ECLAC concluded.