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Date: Mon, 26 Oct 1998 11:43:23 -0800
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From: Sid Shniad <[EMAIL PROTECTED]>
Subject: FREE MARKET RHETORIC COOLS -- Even American officials are now
questioning the effects of speculative capital flows
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The Vancouver Sun October 26, 1998
FREE MARKET RHETORIC COOLS
Even American officials are now questioning the=20
effects of speculative capital flows on developing nations.
LONDON (Reuter) =97 When a U.S. treasury secretary talks of a role for
capital controls in a world economy on the eve of the 21st century, it
shows just how far the financial crisis of the past year has challenged
free market orthodoxy.
Highlighting a dramatic shift in the Washington led economic consensus,
Robert Rubin said last week he had "sympathy" for small economies suffering
havoc wreaked by speculative capital and said the issue now needed to be
addressed.
The tone of comments from New York Federal Reserve chief William McDonough
on Thursday merely reinforced the shift in thinking in these bastions of
free markets.
"We cannot possibly be comfortable with a world in which there is a degree
of suffering of the manner that has afflicted Asia over the last year and a
half," McDonough said, adding that central banks were there to serve the
interest of people and not the banks they regulate.
Economists and observers across the globe accept that the debate about
whether international capital should be regulated has at the very least
been reopened.
But such is the backlash against the relentless push for unfettered cross
border capital movement that the debate is now likely to result in action.
Economist Stephany Griffith-Jones, a fellow at Britain's Institute of
Development Studies and adviser to several governments and international
institutions worldwide, said the key issue was monitoring and regulating
huge hot money capital inflows to countries in the first place.
"I would stress prevention rather than cure," she said, citing the
economic damage caused to poor countries by such enormous capital shifts as
the "Achilles heel of globalization."
The threat to the U.S. push for freer international trade and open markets
worldwide is probably the biggest source of the mood change in Washington,
some analysts said.
Russia, with a population of almost 150 million, has stepped back several
years in its transition to a market economy as a result. Indonesia, with
almost 200 million people, has been wracked by social unrest and political
instability, deepening poverty.
If Brazil's beleaguered markets were to face the same sort of collapse as
Russia or Indonesia, meanwhile, then the economic and political
ramifications for all of Latin America could be disastrous.
--
Michael Perelman
Economics Department
California State University
Chico, CA 95929
Tel. 530-898-5321
E-Mail [EMAIL PROTECTED]
