The debate continues

UNCTAD X becomes an arena for questioning and formulating alternatives to the dominant notion of liberalisation, which has palpably failed to work for the poor. But the outcome of the debate in Bangkok was inconclusive.

SHIPWRECKED at Seattle; bailed out in Bangkok - broad pronouncements on the outcome of the tenth session of the United Nations Conference on Trade and Development (UNCTAD X) may have a certain appeal, though their substantive basis could prove flimsy. Th e significance of the event, after a prolonged lull in the relevance and influence of UNCTAD, stemmed directly from the visible fiasco of the Ministerial Meeting of the World Trade Organisation (WTO) in Seattle in December 1999. The idea was clearly to p ut the discord of Seattle behind and create an ambience in which dialogue on international trade issues could be resumed. But the countries remained too far apart on the fundamentals. The final "plan of action" that was adopted was a palliative that soug ht to brush over the disagreements with broadly phrased statements of intent.

The choice of Bangkok as the venue for UNCTAD X had deep significance. Presiding over the session, Thailand's Deputy Prime Minister and Minister for Foreign Trade, Dr. Supachai Panitchpakdi, utilised it as an occasion to familiarise himself with the pric kly contradictions he will face when he assumes charge as Director-General of the WTO in just over two years. His claim to half the normal term in office of the WTO chief was a concession that the Western trade blocs were compelled to make when all other methods of breaking the deadlock with Asia failed. The Asian bloc's insistence on his candidacy arose from its specific economic experience over the last few years, in particular, from the discord that has arisen in the international policy consensus as a consequence of the crisis that enveloped parts of the continent in 1997.

For close to a decade, Thailand and a handful of other nations from East and South-East Asia lent much-needed sustenance to the legitimacy of economic liberalisation as a policy option. They were the shining examples of success that bolstered the interna tional financial institutions in their drive to break down all sovereign barriers to the movement of commodities and finance. With economic liberalisation having become a credo of sorts all over the world, it has been replaced by a more ambitious and exp ansive term: globalisation. It is now argued that globalisation is inevitable and irreversible.

But since at least 1997, a visible fraying of this comfortable assumption has occurred. As in various other countries in East Asia and South-East Asia, Thailand became an embodiment of the risks and hazards of globalisation when the economy plunged into crisis in 1997.

The issues in Bangkok went beyond trade to the entire crisis of development that has arisen with the Asian economic meltdown - the worst global slump since the debt crisis of the early-1980s. After a phase of relative eclipse, when the WTO emerged domina nt with its fervent advocacy of the free trade gospel, UNCTAD X was an occasion to reaffirm the importance of the development dimension in world trade. Removing barriers to trade would not, in other words, ensure growth and development. The linkages need ed to be conceptualised in a manner that the Washington consensus, orchestrated by the twin Bretton Woods institutions - the World Bank and the International Monetary Fund - had failed signally to do.

Aside from trade, the related domain of international capital flows has also pushed itself to the forefront of global attention since the Asian crisis. These are evidently connected issues. Under the Washington consensus, the cure for external payments i mbalances lies in the liberalisation of trade policy across the board and the adoption of an open currency regime. Logically, this is a process that leads on to the liberalisation of the capital account and the unfettering of financial flows across the g lobe.

Reflecting on the Asian crisis at a special event organised by the host country, UNCTAD's chief economist, Yilmaz Akyuz, highlighted a rather curious anomaly of recent policy. The Asian economies, he observed, did not manage their integration with the gl obal financial system with the same kind of scruple they displayed when joining the world trading system. The question that remains unanswered in the welter of explanations that have been devised for the Asian meltdown is of a basic character: why did le nders lend and borrowers borrow as they did?

Akyuz's reading is an acute one. In the early-1990s, the Western economies were going through a "yield famine" on financial investments. Then there was the Mexican crisis of 1994-95 and the subsequent bailout, which created a "moral hazard" and encourage d imprudent lending.

The behaviour of the borrowers, in turn, was determined by a complex of factors, though Akyuz does not think that an absence of regulation was the central issue. Before the outbreak of the crisis, many of the features of the regulatory framework in the A sian region were seen as factors underlying the economic miracle, he points out.

UNCTAD's view of the Asian crisis, in short, is very different from that of the Bretton Woods twins, and the key difference lies in symmetry of attention. While the IMF and the World Bank tend to pass over the behaviour of the international banks and fin ancial institutions, UNCTAD views them as key agents. UNCTAD, for instance, has drawn attention to the changing pattern of behaviour of international banks, each mutation corresponding to a particular phase in the growth of global financial instability. Till the Latin American debt crisis of 1982, syndicated lending was the preferred medium of the global banks seeking to recycle the surpluses of the oil producers. Following the default of two big borrowers, bonds became the instrument of choice. Soverei gn bond issues, again underwritten by the big banks, were used to pay off much outstanding external debt. Portfolio flows - into both government debt and equity - constituted the central element of the Mexican crisis of 1994-95. And in the case of Asia, bank lending of the traditional kind, though of extremely short maturities, was the key destabilising factor.

There were two issues that occupied the centre-stage in Bangkok: trade and the architecture of the global financial system. UNCTAD X became an arena for questioning and formulating alternatives to the dominant notion of liberalisation, which has quite pa lpably failed to work for the poor. But the weight of orthodoxy seemed to hang heavy and the outcome of the debate was, at best, inconclusive.

The evident reality today is that the world economy is going badly and irreversibly out of joint. But the contention between different interpretations of the reality is yet to gather momentum. Going into Bangkok, there were ample indications that the IMF and the World Bank are not quite as assured in the advocacy of the free market gospel as they once were. UNCTAD X was the last official engagement of Michel Camdessus, the Frenchman who has headed the IMF as Managing Director for 13 years. Though shroud ed in some ambiguity, his premature resignation is seen among critics as a long-delayed act of accountability for the IMF's badly miscued policy prescriptions over the last decade. Within loyalist financial circles, it is whispered that Camdessus' resign ation is a way of preempting embarrassing disclosures about a scandal-ridden lending programme to the Russian Federation.

Similarly, Joseph Stiglitz, an economist of some eminence in American academic circles, recently quit as chief economist of the World Bank after a public row over the handling of the Asian crisis and its aftermath. In his final days in office, he thought it necessary to urge the international financial institutions to be more mindful of the interests and aspirations of the poorer countries.

This evidence of increasing confusion is submerged in the new theme of "policy coherence". Commerce Minister Murasoli Maran pointed out at the plenary session in Bangkok that this was a doctrine which "generated suspicions and invited resistance". Though cooperation may be useful, he warned, "we should be careful that in the name of coherence we do not create a networking behemoth which puts pressure on developing countries through cross-conditionalities". This was a danger that was especially acute sin ce the WTO had the power to impose sanctions.

WHAT was evident in Bangkok was a tendency for the various actors to fix their attention on different aspects of the global reality. For the IMF and the World Bank, the basic malaise arose in large measure from the tardy progress of free market reforms. Further, the absence of "institutional capacity" in many countries meant that the benefits of trade remained unabsorbed. "Institutional capacity building" is the new justificatory phrase for an intrusive regime of policy tutelage in the developing world.

The emphasis in the IMF-Bank prescription is on institutional changes - touted as reforms of the second generation which alone would impart a degree of completeness to the trade and financial liberalisation that was accomplished in the first round. As Ca mdessus put it in his address in Bangkok: "Efficient markets and sound financial systems require strong economic, social and political institutions. I refer to the web of laws, regulations, standards, and codes that support the functioning of markets. It is all summed up in two key concepts - transparency and good governance".

The theme was echoed by James Wolfensohn, president of the World Bank. What is called for is attention to the structure of the development process, he stressed, not concern for throwing massive amounts of money at the inherent problems. In other words, g lobal policy orientations would remain broadly unchanged. The onus was on the developing countries to initiate the internal reforms - across a broad range of institutions and activities - that would enable them to benefit from rapid integration with the world economy.

In the World Bank's new policy formulation, the problems of the global economy are only amenable to solution in a "comprehensive development framework"(CDF). As Wolfensohn put it in Bangkok, the CDF would highlight the "interdependence of all aspects of development strategy - social, structural, human, institutional, environmental, economic and financial". In other words, the CDF would treat "social and structural issues equally with macroeconomic and financial issues, so that the former are not oversh adowed by the latter, as has sometimes been the case in the past".

Prudently, Wolfensohn did not mention the political dimension. But the newly minted philosophy of the World Bank is clearly a case for intervention in the core political processes that determine a country's development priorities. Afflicted as a rule by endemic political instability arising directly from the crisis of economic development, this is a prescription that the developing countries could clearly do without.

FOR delegations from the developing countries and particularly for those from countries afflicted by the financial crises of the last decade, the reading was somewhat different. In their estimation, the principal problem is the failure to have an adequat e framework of discipline and regulation for footloose flows of financial capital. The leader of the Iranian delegation put it in the following terms: "If financial mechanisms and markets do not enjoy appropriate and logical monitoring, it can cause seri ous damage to development processes which for its compensation may require heavy expenses". Iran did, however, express its concurrence with the view that "globalisation is a fact of life that cannot be denied".

Taking up the theme of "making globalisation work for everybody", Juan Somavia, Director-General of the International Labour Organisation (ILO), wondered aloud whether means are available to ensure that "productive capital", rather than the "financial fl ows of a casino economy", enjoy the foremost priority in global policy debates. Is there a way of ensuring not merely an end to endemic unemployment, but also of guaranteeing "decent work" to all those who may seek it? Is there a way of putting the funda mentals of peoples' lives above the fundamentals of the market? These were questions that called for immediate practical answers, said Somavia.

Globalisation was neither irrevocable nor irreversible. The technological components, such as the digital revolution, were undoubtedly positive in their implications, provided a way could be found to bridge the growing chasm in access to its benefits. Bu t the social, economic and monetary policies of the current phase of globalisation needed to change.

These are not themes the IMF and the World Bank feel particularly compelled to address, since their thinking remains confined within the paradigm of financial liberalism. What is evident today is an effort to yoke the doctrine of financial liberalism to the newly adopted cause of poverty reduction. In his valedictory enunciation of policy at Bangkok, Camdessus stressed the need for a "reinvigorated multilateralism" that alone could overcome the problem of world poverty.

The new multilateralism consists of three distinct components - all unfortunately very much part of the old. In Camdessus' narration, these are the liberalisation of trade, the liberalisation of payments and the liberalisation of capital movements.

Clearly, the Bretton Woods institutions are yet to appreciate the lessons of the current crisis of development. Neither are they any nearer than they were to comprehending the viewpoint of the developing countries. At one level, popular disdain for the i nsensitivity of these institutions - as also the WTO - was portrayed in street demonstrations in Bangkok. The most dramatic expression was perhaps the representative of Patisseries Sans Frontieres (Bakers Without Borders) who broke through a secur ity cordon to give Camdessus the "pie in the face" treatment that has in the recent past been visited on software tycoon Bill Gates and former WTO chief Renato Ruggiero.

Rubens Ricupero, UNCTAD Secretary-General, nevertheless found some room for optimism. The experience of globalisation over the last decade had shown that the world needed something other than the Washington consensus in terms of policy options. And even if there had been no formal articulation of these alternatives in Bangkok, there was a movement towards convergence that had begun. Free trade, the importance of the private sector and the imperative of macroeconomic stability had all won wide recognitio n as policy objectives. But the last decade had also witnessed the increasing acceptance of ideas that were persistently denied by advocates of "uncritical market triumphalism". This was the "contrary movement of ideas" that identified financial flows as an inherently unstable entity with potentially damaging effects on social and political institutions. Indeed, the damage that could be wrought by the rapid flux of capital movements was so acute as to justify occasional recourse to controls. And finally , said Ricupero, the last decade had brought the realisation that many of the current problems of development are irresolvable in the context of the prevailing global financial architecture.

In the IMF-World Bank reading, a new global architecture requires the acceptance of the canons of financial orthodoxy across the globe. This is an end that it hopes to achieve when the WTO begins its mandated negotiations on services trade - financial se rvices will feature on the agenda in Geneva, along with tourism, telecom, computer services and other areas.

Developing countries clearly have a different perception, except when they are driven under the goad of IMF-World Bank conditionalities to policy decisions they have little conviction in. The debate on global financial architecture remains sunk in indiff erence. As UNCTAD chief economist Akyuz remarked, the emphasis so far has been on the plumbing rather than on the architecture.

A number of possible schemes were discussed, all of them involving conflicts of interest between developed and developing countries and the prospect of naked power play. A case in point was the proposal made by Jose Antonio Ocampo, executive secretary of the U.N. Economic Council for Latin America and the Caribbean (ECLAC), that a plurality of financial institutions be brought into existence, owned by developing countries themselves and operating on a regional basis. The proposal evoked memories of the aborted move to set up an Asian Monetary Fund immediately after crisis hit the continent in 1997. Though backed by Japan, which was willing to put in the entire seed capital for the organisation, the Asian fund proved a non-starter because of the U.S. op position.

ECONOMIC downturns often provide occasions for a flourishing bazaar in ideas. By this criterion, UNCTAD X was a vigorous debating society. Yet as Ricupero observed in his closing statement, the session had to reach for the pill of consensus after all the ideas had been placed on the table, simply to avoid the hazard of intellectual indigestion. If the various ideas floated in Bangkok were blurred and submerged in the final Plan of Action adopted by UNCTAD X, that was only on account of the nature of the organisation and its need to ensure a broad consensus among diverse constituents. But as the global economy continues to lurch through the ongoing crisis, there is little doubt that the ideas raised in Bangkok will be resurrected, perhaps in still more bold formulations.