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Economic Giants Urged to Fight Global Crisis

By Tito Drago, IPS, 19 October 1998

OPORTO, Oct 19 (IPS) - Leaders of 21 nations have called on the world's main industrialised countries to act now to prevent the global economic crisis from getting worse.

Making the call on Sunday, heads of state and government of Spanish and Portuguese-speaking countries of Latin America and Europe urged Japan, the United States and the European Union (EU) to "prevent a global recession by reducing interest rates".

The Ibero-American heads said the three economic powers should also "take the initiative of immediately implementing measures needed to continue the process of trade liberalisation, to avoid the deceleration of their economies and to bolster their financial stability".

The calls came in a 'Declaration on the International Financial Situation' that had not been part of the final declaration of the Oct.17-18 Ibero-American Summit that the foreign ministers of the 21 countries had approved on Saturday.

The heads decided, at a closed-doors meeting, to add it to the final document, following a proposal to that effect by Presidents Carlos Menem of Argentina, Fernando Henrique Cardoso of Brazil, Jose Maria Aznar of Spain and Ernesto Zedillo of Mexico.

Cardoso said Brazil and China were plugging the hole in the dyke that was holding the crisis back and if any of them withdrew their fingers, the tidal wave from Southeast Asia would drown the global economy.

He criticised the Group of Seven main industrialised nations for acting "as if it were a crisis in Asia, not something that can affect them at any moment".

He warned that, in the face of the crisis, speeches and philosophical reflections were not enough and said that the Ibero-American countries were in no way the cause of the financial instability, so they should not be its victims either.

Aznar pointed out that this was no time for a debate on the multilateral financial institutions such as the World Bank and the International Monetary Fund (IMF) "but for adopting concrete measures to face up to the crisis". When a fire breaks out, he said, people have to put it out; they cannot afford to study decisions to be implemented in six months time.

Spain will contribute 5.7 billion U.S. dollars and Argentina one billion dollars to an IMF contingency fund for countering global financial instability, their respective presidents pledged.

Aznar also said that at the upcoming EU summit, billed for the end of the year, he would demand that Europe respond to the crisis with a contribution, not with silence. Spain and Portugal also agreed to convey to the rest of the EU a call by Latin American nations for progress on the issue of trade liberalisation, especially in agriculture.

"The policy of (agricultural) subsidies is hurting us and the Rio de Janeiro Summit" between Latin America and the EU, billed for June next, "will be the right opportunity to face the problem together," Menem told IPS.

Aznar told IPS that Spain would back the inclusion of agriculture on the agenda of free-trade negotiations between the EU and the Southern Cone Common Market (MERCOSUR - Argentina, Brazil, Paraguay and Uruguay).

Germany, Belgium and France had warned in July, when the European Commission approved the launching of negotiations with Mercosur, that they would oppose the inclusion of agriculture and threatened to use their veto power.

In their declaration, the heads said they were worried the international financial situation might cause a severe global recession and they recalled that the financial turbulence now affecting the world did not originate in Ibero-America.

The global crisis requires global solutions, "the participation of all public and private actors in the international economy", active intervention by the most advanced economies and "opportune action by the international financial institutions," they stressed.

Banking systems are inadequately regulated and progress cannot be made in the area of social justice unless there is economic growth, they noted, adding that the free flow of goods and capital is an important engine of growth.

The participants in the Oporto summit agreed to call on the United States, Japan and the EU to participate in the contingency fund at the IMF "so as to reduce the risk of the crisis indiscriminately spreading to economies that have carried out structural reforms and thus have solid foundations".

They also encouraged countries to adopt "economic and financial policies that correct their internal imbalances" if they have not yet done so, and called on the IMF, World Bank and Inter-American Development Bank to promote the implementation of suitable fiscal, monetary and banking policies.

They also urged the three multilateral institutions to adopt earning warning mechanisms against risks and help solve financial difficulties like the present ones through partial credit guarantees or by awarding special drawing rights.

They also expressed confidence in the solidity of the economies of the 21 countries and called on the United States to lift the embargo it has kept up against Cuba since the 1960s. (END/IPS/td/ff/if/kb/98)