India's National Magazine
From the publishers of THE HINDU
Vol. 16 :: No. 05 :: Feb. 27 - Mar. 12, 1999
In their attempt to strike a middle ground between the extremes of defying or accepting the IMF's prescriptions, the G-15 nations have in effect admitted that there is no alternative to the final arbitration of the multilateral agency in global financial matters.
TEN years into its career, G-15, the grouping of developing nations, which today has 17 members, is yet to establish its credentials as an interlocutor in the global dialogue on economic policy. The economic meltdown in South-East Asia, which has deeply scarred two substantial member-nations of the G-15, seemed likely for a while to provide a fulcrum to unite the disparate interests of the nations represented in the forum. But three summit meetings later - in Kuala Lumpur, Cairo and recently in Montego Bay, Jamaica - convergence of perceptions seems more elusive than ever.
The three-day summit at Jamaica, which concluded on February 12, conformed to the pattern of earlier gatherings in attracting a rather sparse attendance by the heads of state or government. India was, after two successive abstentions by the head of the government, represented at Jamaica by Prime Minister Atal Behari Vajpayee. Also in attendance was Prime Minister Mahathir Mohammad of Malaysia, who has sought to impart a new thrust to the deliberations since hosting the seventh summit of G-15 leaders in 1997. Other countries that were represented at the apex level were Sri Lanka, Nigeria, Senegal, Zimbabwe and Venezuela.
Expectedly, it was the Malaysian Prime Minister who took the most aggressive posture in addressing the global economic crisis. Exercising his famous penchant for blunt talk, Mahathir Mohammad spoke of how the great Asian tigers had been reduced to "kittens" who could do little but "whimper and beg", while their peoples went on the rampage. The sardonic tone was intended to goad the G-15 into a course of action that would be appropriate to the magnitude of the crisis facing developing nations. Pitilessly focussing on the marginal character of the G-15's intervention in the global dialogue, Mahathir said: "We are 17 countries scattered over three continents. We are weak. We are poor. And we are linked with each other by thin and friable beliefs that we have something in common... On the other hand, the rich and the powerful are consolidating, forming cohesive political alliances."
THE rhetoric had a strong basis in reality. Since the South-East Asian crisis erupted in mid-1997, Malaysia has been one country which has defied the orthodoxy orchestrated by the International Monetary Fund (IMF) and advocated by a group of seven industrialised countries (the G-7). It introduced stringent foreign exchange and capital controls in September last year to support a new peg of the local currency, the ringgit, to the dollar. In the bargain, speculators who had relied on the religious adherence to IMF principles and a rapid depreciation of the Malaysian currency, took a heavy beating. Malaysia has also, in defiance of IMF orthodoxy, reversed the fiscal austerity measures that were implemented in the early days of the crisis.
Other crisis-afflicted countries have also shown hesitant signs of defying the IMF diktat on adjustment policies, but none more so than Malaysia. This was partly because Malaysia did not expose itself to short-term capital flows recklessly and was thus relatively less affected by the large-scale migration of capital from South-East Asia. On this count it has also succeeded in balancing the internal situation without serious political costs, although the prospect of destabilising withdrawals of capital through clandestine channels remain.
This is in stark contrast to Indonesia - also a member of the G-15 - where the economic crisis has engendered a sharp political polarisation and caused deprivation on an immense scale. IMF estimates put the proportion of people facing the prospect of acute poverty between 5 and 11 per cent. And as the conditions that are imposed as a concomitant of the IMF's structural adjustment programmes begin to bite deep, this figure could well go up.
SUBHASH CHANDER/ AP
Curiously, this painful path to adjustment is accepted almost on an axiomatic basis by most of the developing countries. Within the G-15, Argentina, Brazil and Mexico staunchly oppose the confrontationist posture that Malaysia has adopted. Mexico subjected itself to IMF ministrations in 1995 and seemed to be out of the woods, when it was buffeted by fresh pressures in August 1998. Brazil suffered a massive withdrawal of capital following the Russian crisis of August 1998, and was similarly obliged to take on board a large-scale adjustment programme under IMF tutelage. Being next in the scale of vulnerability, Argentina too sees little room to manoeuvre and explore alternatives to this rather stringent programme.
Within the G-15, the task of reconciling these divergences of perception fell upon India. In his intervention at the G-15 summit, Vajpayee underlined the need to reform the "global financial architecture", since "interdependence has ensured that shock impulses are transmitted worldwide and no country is immune". The attendant hazards, he pointed out, had been seen recently in East and South-East Asia and then in Russia and Brazil.
Although India has not been directly affected by the global financial turmoil, its prospects have been damaged by the slowdown in trade and the inflow of foreign direct investment. Yet, said Vajpayee, India remained committed to its "economic liberalisation programme at a pace and in a manner" that it considered optimal to its needs.
India did partly endorse Mahathir's rather dire reading of the global economic prospects. But it added an important qualification in upholding the model of liberalisation rather than the model of withdrawal that Malaysia had patented. The outcome was the reiteration of the well-advertised nostrums that have proven ineffectual in the past. As Vajpayee put it: "We cannot remain complacent. Fortunately there is greater realisation now of the need to reform the global financial architecture. We need to devise a rule-based system to bring greater discipline to the global financial markets. Where a crisis does erupt, the country will need to be quickly assisted while at the same time prompt preventive steps are taken against the contagion effect."
IN the contention between the extremes, the middle ground triumphed. If nothing else, the G-15 summit was compelled to seek out the middle ground only as a survival imperative. And as the country which has been relatively insulated from the financial turbulence and is not excessively dependent on U.S. patronage, India best articulated the path of moderation.
SUBHASH CHANDER/ AP
The joint communique issued at the end of the summit steered clear of radical formulations. It stressed the indispensability of a "community of interests" between developed and developing countries and went on to reaffirm the obvious: "We remain committed to market-based policies. Equally, we recognise that for the effective functioning of the market economy, governments must necessarily play a strong and effective role in the development of management of institutions, systems and infrastructure."
Among other things, the G-15 summit called for introducing mechanisms and rules "to monitor and supervise the operations of large financial market players, including hedge funds and currency speculators", and the inclusion of "social safety nets as integral parts of development policies and programmes". Evidently, there is a certain discord between these two principles, since the latter is integral to the internal policies of a sovereign state, while the former requires cooperation on a multilateral basis. This curious juxtaposing can only be read as a submission to the IMF and other bodies that are multilateral in name, that they should seek to mitigate the rigour of the adjustment programmes they force upon crisis-stricken nations. It assumes that there is no alternative to the final arbitration of the IMF in global financial matters.
Perhaps the only decision of some immediate practical benefit that the G-15 arrived at was to hold a meeting of trade and commerce Ministers prior to the next ministerial meeting of the World Trade Organisation. The industrialised countries generally tend to favour a new round of global trade talks commencing with this meeting. Equally, the developing countries are insistent that the unfinished commitments of the last round of trade talks should be met before new items are forced on to the agenda. India will host the proposed meeting of trade Ministers in August this year. It is unclear whether a more fruitful phase of policy coordination will follow. An earlier effort by India to initiate a dialogue within the G-15 over the global financial crisis floundered on account of a lack of quorum. And at multilateral forums, each member-nation of the G-15 is famously prone to take its own course. For a grouping that combines a vast diversity of nations, each with its own pattern of engagement with the industrialised world, there perhaps could be no other way.