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Developing Countries Call for New World Financial Order
Representatives of developing countries attending the 21st Century Forum -- Conference 2000 in Beijing have called for the reform of the international financial system and the establishment of a new world financial order amidst the process of economic globalization.
Speaking at the three-day conference which concluded Friday, Dai Xianglong, governor of the People's Bank of China, the central bank, said the monopoly exercised by a handful of developed countries in making rules must be changed.
The international community must work together on a new international economic and financial coordination mechanism, based on the principle of equality and mutual benefit, that takes into consideration the opinions of the developing countries, he said.
On the role of the International Monetary Fund, Dai suggested that the world organization focus on two issues. First, IMF should have an early warning mechanism to prevent financial crisis.
Second, it should provide liquidity assistance in times of crisis.
Il Sakong, chairman of the Institute for Global Economics, the Republic of Korea, said financial globalization is primarily responsible for the rapid spread of the Asian financial crisis throughout the world.
He noted that the daily exchange trading volume in the globalized financial market hits nearly two trillion U.S. dollars, and that "only a small portion of the total is directly related to real economic activities, and the rest are purely financial."
According to him, these speculative funds pose a strong threat to the world financial market, especially to those relatively small and weak emerging economies.
"The global economy today is still under the hold of old international financial structure, based on an institutional foundation laid more than half a century ago. Naturally, the world today needs a new global financial structure to deal appropriately with new challenges posed by the financial globalization," he said.
Sakong noted that decisive actions should be taken in three critical areas: short-term capital flow, private-sector participation in crisis prevention, and resolution processes and exchange rate system for key currencies.
As today's uni-polar world complicates global decision-making, he suggested that special efforts be made to set up a closer regional co-operation to help reduce potential financial systemic risks, including regional macro-economic policy coordination, collaborative monitoring of volatile financial flow and the better use of regional monetary institutions supplementing the role of the IMF.
Virabongsa Ramangkura, former Thai Deputy Prime Minister, accused capital-heavy developed countries of putting pressure on capital-weak developing countries to open their capital market, thus exposing them to the flood of international capital flow and causing the Asian financial crisis.
He suggested that in the process of globalization, developing countries should reserve stable policy tools such as exchange rates, interest rate, and prices. Otherwise, "instability will be the result."
"At the moment, partial liberalization of the capital market and flexibility, or the Buddhist principle of 'following the middle path' is the most appropriate policy guideline," he said. The former official said developing countries should adopt market liberalization with partial capital controls depending on their size, development level and their political, social and cultural constraints.
Ramangkura called for the establishment of an Asian Monetary Fund (AMF), which he said would have a better understanding of the economic management, business culture and practices of Asian countries than the IMF.
The World Bank-IMF system "had served quite well for almost 55 years until the recent Asian economic crisis. Both have lost their credibility. The search for a new and better system, or modifications of the existing system, is badly needed," he said.
According to him, the creation of an AMF need not dilute the importance of the IMF; with close co-operation and coordination, they would be complimentary.
Ramangkura also suggested reforms be made in the Asian Development Bank, which he said is only a copy of the World Bank and whose role in preventing crisis and restoring crisis-hit economies had proved minimal.
The reformed ADB would be more capable of analyzing the regional economy and could give constructive recommendations, he said.
Jusuf Wanandi, a senior fellow of the Center for Strategic and International Studies, Indonesia, also advocated the reform of the IMF, saying that its governance is unrepresentative and not adequately reflecting the distribution of global economic power.
Whereas the IMF today is largely governed by the G-7, mainly by the U.S., he supported the greater role of institutional governance and surveillance of the international monetary system by the G-20, consisting of the G-7 and a group of significant developing economies such as China and the Republic of Korea.
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