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A point of departure

Print edition : Nov 15, 1997 T+T-

The seventh summit of the G-15 came closer than ever towards articulating an organised sense of dissent against the worldwide consensus on globalisation orchestrated by the IMF and the World Bank.

CONCEIVED as a forum of intervention in global councils, the Group of 15, as a distillate of the broad range of interests articulated by the Group of 77, was intended to concentrate the economic interests and strategic concerns of developing countries into a purposive agenda that could serve as the basis of engagement with the advanced industrialised nations. But in the eight years of its existence, G-15 has failed to inject a real sense of direction to the process of multilateral dialogue. In contrast to the rival grouping of industrialised countries - the G-7, now enlarged to the G-8 to accommodate the security challenges that Russia poses - the G-15 has been at a growing risk of a loss of focus, precisely because of the diversity of national interests and the divergent patterns of engagement with the industrialised world that are reflected in it.

By the rather irresolute standards of the past, the seventh summit of the G-15 at Kuala Lumpur between November 3 and 5 was seemingly a point of departure. This was in some measure fortuitous. By virtue of being the host, Prime Minister Mahathir Mohamad of Malaysia could impart a special sense of focus to the occasion by bringing his immediate sense of grievance against the industrialised countries into the foreground of deliberation. Partly on account of his forceful personality and largely because the concerns he expressed struck up deep resonances with the other participants, the summit in Malaysia perhaps came closer than ever towards articulating an organised and half-way coherent sense of dissent against the worldwide consensus on globalisation orchestrated by the Washington twins - the International Monetary Fund (IMF) and the World Bank. Reservations that other member-countries had with Mahathir Mohamad's relentless pursuit of a single-point agenda were set aside in deference to the host's prerogatives and to the undoubted centrality of the issues he raised.

Mahathir Mohamad has always been given to blunt speech. As head of government in a country where the state commands enormous authority, his occasional rhetorical extremes enjoy a high degree of indulgence from domestic audiences. And his growing stature in world affairs, which is an outcome of his country's dramatic emergence in the last decade as a regional hub of the world economy, has enabled him to exercise the same penchant for candid speech in international forums. Combining these unique attributes, Mahathir Mohamad was at his bluntest and best when he obtained an opportunity to address an international forum on his home territory.

Malaysia, he said in his inaugural address to the summit, had in recent times been trying to promote the virtues of a "prosper thy neighbour" policy. And in a context of global inter-dependence, which made neighbours of all countries, Malaysia believed that the policy could with universal benefit be adopted across regions and across continents. His country's enlightened efforts, argued Mahathir, had for many years contributed to the achievement of the "highest growth rates" in the world. But it had all been brought to nought by currency speculation, which set back "decades of sweat, toil and tears" in a matter of months.

The rules of engagement that the currency speculators brought to bear were fundamentally asymmetric. "For every dollar that they deposit," complained Mahathir, "the banks allow them a gearing of 20 times": "And since the funds at the disposal of these traders run into billions of dollars they have more money to play with than the reserves of most developing nations."

Mahathir had a point. The rules of the game for currency traders remain a grey area in international financial regulation. The recent run on South-East Asian currencies represents a story of huge forward currency transactions backed by months of meticulous planning and cash advances drawn from a variety of unidentified sources (stories on pages 105-108). Conservative estimates of the volume of cash that the Thai central bank sunk in its vain effort to hold the value of its currency, run to the order of $10 billion.

The effort proved futile simply because the currency speculators could bring a larger volume of capital into play and successfully bet on a future depreciation of the Thai currency by ruthlessly selling it short. It all boiled down to who had the greater endurance for the course. And the Thai economy had been chosen with great care by the speculators, who identified its balance of payments problems and debilitated financial system as chronic areas of vulnerability. Once the weakest link in the chain of South-East Asian inter-dependence was snapped, all the other currencies in the region followed the Thai baht on the downward slide.

Overwhelmed by his sense of grievance at the currency traders' villainy, Mahathir clearly had little time for these subtleties. "Weak fundamentals are often cited as if these can mysteriously on their own weaken currencies," he said, scarcely able to disguise his incredulity. But the truth was that it took the efforts of traders who sell local currencies against the U.S. dollar to bring about turmoil in the money markets.

The Malaysian leader's one-sided emphasis did elicit a sense of disbelief in some quarters. Currency speculation gains no mileage except in situations where the economic fundamentals permit it to. But in insisting that speculation was unjustified even in circumstances that made a country vulnerable to it, Mahathir was making an ethical point with profound implications for the now unfashionable notion of national sovereignty.

Of the four speakers at the inaugural session, only India's Vice-President, Krishan Kant, chose to take up this central theme of Mahathir's address. The recent disturbances in the currency market, he said, highlighted "the need for some insulation of developing countries from the whims of 'market sentiment' and exchange rate fluctuations among the major currencies." Towards this purpose, G-15 nations, he concluded, needed to "work to evolve suitable strategies."

Neither of the two heads of state who spoke at the opening session - Robert Mugabe of Zimbabwe and Alberto Fujimori of Peru - had much to say on the currency issue. But India's qualified endorsement was all that Mahathir needed to press vigorously for further action on the issue.

In later deliberations, which remained closed to public view, Egypt proposed that a forum of Finance Ministers and central bank governors could be set up by the G-15 to consider the questions raised by currency turbulence. This was in line with India's more general suggestion that the matter be taken up within G-15 at an appropriate level of deliberation. It was also decided that a direct process of consultation with the IMF would be taken up to work out appropriate regulatory mechanisms for the currency market.

By all accounts, that was the only opening that Mahathir required for a full-fledged offensive on the question. India's official spokesman at the summit, A.N. Ram, Secretary (Economic Relations) in the Ministry of External Affairs, described the Malaysian leader's exposition as "brilliant and incisive". The sporting metaphor came into play, with Mahathir insisting that a "level playing field" - on which much store was set by international financial institutions - was just not enough. A system of handicaps, as in golf, was necessary to ensure that the poor and the weak did not suffer acute disadvantages in a contest of wills with financial powerhouses from the West. In the mood of the moment, the Nigerian delegate compared the international financial system to a game of football in which the advanced nations reserved for themselves the right to shift the goal posts continually.

The informal retreat, now de rigeur in all summit conferences, served as the setting for further reflection over the issue. The outcome was a statement on currency markets which served as a special supplement to joint communique that is the staple of summit conferences. Formally released at the concluding session of the summit, the statement called upon the IMF and the World Bank to "study recent developments in currency markets with a view to appropriately regulating them, in order to make them more open and transparent."

On objective assessment, the statement was in part contrary to the sentiments that had been expressed at the summit and in part redundant. Contrary, because Mahathir had repeatedly chosen to challenge the evaluation of the IMF and the World Bank that weak fundamentals in the economies concerned were responsible for the financial turbulence that enveloped them. And redundant because the IMF, at the moment the statement was adopted, was already engaged in a detailed study of the determinants of the currency crisis and the possible methods that could be adopted to prevent a recurrence in future. It is unlikely in the extreme that the IMF will have a drastic change of mind in the context of the current market turmoil. Its prescription, in fact, has been baldly stated already - that the affected countries should adopt a set of intrusive "second generation reforms" that would put their political, judicial and financial systems under the microscope of IMF scrutiny.

After all the rhetorical raising of stakes, it came as an anti-climax that the G-15 had finally to fall back upon the IMF as an impartial referee to work out the new rules of engagement for the currency market. In his remarks at the joint press conference which concluded the summit, Mahathir conceded that the situation was not free of ambiguity. Responding to a question on how the IMF would be expected to regulate the currency markets, he took a line of equivocation: "This question will be considered by the Finance Ministers and central bank governors of the G-15, who would draft a set of proposals for the IMF. Whether or not the IMF can or will implement them is another question."

That all the brave talk finally came to an admission of inability is a comment on how strongly the G-15 has been able to project its voice in world councils. The assessment of India's Ministry of External Affairs, prior to the summit, had verged on a high degree of scepticism. Not only had the efforts of the G-15 to work out unified positions suffered on account of member-governments' preoccupations with domestic issues, but so also had the divergence of interests among its constituents been a severe handicap. Efforts to engage the advanced nations in dialogue had been blocked by influential members of the G-7, understood to be the U.S. and Canada, who also found the indifferent record of attendance of heads of state and government in the G-15 summits a telling comment on the efficacy of the forum.

THIS somewhat gloomy attitude perhaps influenced India's rather indifferent participation in the summit. There was, first, a strong inclination to work bilateral and regional interests into the agenda - such as cross-border terrorism, which in the idiom that official spokesmen employ today, is uniquely an Indian preoccupation. Another issue that India urged the summit to consider pertained to the high-technology control regimes that advanced industrial nations had put in place to deny developing countries access. Also figuring on the country's list of concerns was the pace of dismantling quantitative restrictions on imports.

In varying degrees, all these are concerns unique to India, and were all brushed aside in Mahathir Mohamad's evangelical zeal to take on the issue of currency regulation. The best that could be said for India then was that it did not stand in the way of the Malaysian leader as he rushed off into battle. India's vulnerability in the currency markets is nowhere near as acute as the high-profile growth leaders of the world economy. But hot money flows are a matter of universal concern.

If the G-15 can agree on its attitude towards this issue, it would have gone a long way towards establishing its credentials as an interventionary forum for the developing countries in global economic affairs. Should it fail the test, then each developing country would perhaps stand vulnerable and isolated in the carnage that seems imminent in the global marketplace.