Conflicting interests

Von By Rubens Ricupero, Geneva

Although the financial crises that swept the developing world have been contained thanks to efforts at the national and international level, it would be foolhardy of policy makers not to recognise the continued pervasive influence of financial volatility over the economic prospects of developing countries, or their vulnerability to downturns in the richest parts of the world economy. From a longer-term perspective asymmetries and systemic biases in the world economy continue to stymie growth prospects in the developing world, with finance moving much further and faster than trade or real investment, and the movement of labour almost entirely excluded. More significantly, the architects of integration have all too often ignored or downplayed the concerns of developing countries.

For some time the United Nations Conference on Trade and Development (UNCTAD) has questioned the conventional wisdom that a swift dose of liberalisation, deregulation and privatisation will spur free markets to unleash the kind of growth needed to address the problems underlying poverty and underdevelopment. At UNCTAD's Tenth Conference, held in Bangkok in February, there was a general recognition that the globalisation process should not be dictated by the interests of the rich and powerful and an implicit rejection of the idea that globalisation is some unstoppable force sweeping inexorably across the face of the world. The conference involved governments, civil society and multilateral organisations. So far market-driven globalisation has caused widening divisions within and among countries. The world economy is more unstable than at any time since the inter-war years, and developing countries remain the most vulnerable to its shocks and disruptions.

Three sources of unevenness and vulnerability received particular attention in Bangkok. The first was the volatility of vast financial flows. For many countries, policy-making has been held hostage to financial markets, and the kind of discipline that these markets impose on governments is not always conducive to sustained growth and development. Since the Asian crisis, it has become increasingly clear that when policies falter in managing integration and regulating capital flows, international finance can inflict massive damage on an economy - even those with sound track records of macroeconomic management and social development. The existing financial architecture is in urgent need of an overhaul.

Second, developing countries have been exposed to serious asymmetries in the trading system. Many of the predicted gains for these countries from the Uruguay Round of GATT (the General Agreement on Tariffs and Trade) have proved illusory. Indeed, a combination of declining terms of trade, uneven growth and persistent protectionism in industrial countries, and a rapid liberalisation of trade and capital accounts in developing countries has resulted in serious payment disorders, particularly for commodity producers.

Finally, many developing countries, including some of the world's poorest, are still struggling with the burden of official debt. There is now ample evidence of the adverse effects of debt on investment and growth in these countries, particularly the LDCs (less developed countries) where adequate external support remains a prerequisite for kick-starting the development process. None of these obstacles to sustained growth and development can be effectively addressed at the national level. What is needed is bold leadership at the global level and a collective effort. Political constraints and conflicting interests, rather than conceptual and technical problems, appear to be the main reason why the international community has made little headway in getting up an effective global arrangement for the prevention and management of financial crises and particularly in recognising debtor rights and burden-sharing.

Although the 1990s saw a return of financial flows to developing economies, these were concentrated in a handful of emerging markets, and a substantial share of them were either unavailable for productive investment or proved too hot to handle. Official financing and efforts to help the least advantaged through debt relief will be needed for many countries. Indeed, it is time to place a full debt write-off squarely on the agenda of multilateral and bilateral lenders. Over the longer term, additional foreign borrowing makes sense only if higher export earnings are sufficient to finance the additional debt service. For this to occur, some of the most glaring imbalances in the trading system, such as the freedom of developed countries to massively subsidise their agricultural exports and place their industrial subsidies in the non-actionable category, must be eliminated. Trade negotiations must now give priority to the concerns of developing countries in general and LDCs in particular. In other words, a new round of negotiations must be development-oriented.

The end of sharp political rivalries at the international level has neither silenced the cries of the poor nor hidden the complexities of development policy. Extremism on policy issues cannot provide the route to a more prosperous world economy. To redress the imbalances and correct the malfunctioning of the world economy, a more inclusive and participatory decision-making process is needed at the international level. New international standards, under which globalisation is fostered and managed, will have to be negotiated, in a democratic and transparent manner, by all parties concerned - not set exclusively by a small number of rich countries.