Abandon IMF Prescriptions, UNCTAD Recommends

By Diego Cevallos, IPS, 16 September 1998

MEXICO CITY, Sep 16 (IPS) - Latin America is trapped in a systemic crisis of international finances and there is little hope for the region to overcome its troubles with the prescriptions currently being followed, says the UN Conference on Trade and Development (UNCTAD).

The rules must be changed, and what is happening today is nothing but another link in a chain of crises that began to break out in the 1970s. Even if recovery occurs tomorrow, another crisis will follow, because the problems are inherent to the model itself, says Jan Kregel, an UNCTAD consultant.

In its 1998 report released in Geneva Wednesday, UNCTAD questions the strategies pushed by the International Monetary Fund (IMF) and the World Bank, and argues that the Asian crisis and its fallout in Latin America arose largely from those very prescriptions.

According to the UN agency, capital controls, regulations for the suspension of debt payments under certain specific circumstances and the promotion of systems of regional information- sharing and collaboration to prevent monetary turmoil and the contagion of problems from abroad are all measures that should be applied today.

In the case of Latin America, the UN agency warns that the impact of the Asian crisis will continue to be felt throughout the rest of the year and perhaps even longer. It predicts a decline in exports, waning competitiveness and a slowdown in economic growth.

The recovery enjoyed by the region last year, in the wake of the Mexican crisis and its international 'tequila effect', was significant but transient, says Kregel, who warned that if the global rules did not change, crises would keep occurring.

Closing our eyes to the systemic character of financial instability is neither responsible nor acceptable, according to the UNCTAD report. Supervision and global regulation have been left behind by the integration of financial markets, with increasingly damaging consequences.

Tackling the crises requires a combination of old and new techniques with a view to reducing volatile movements of international capital, it adds.

Latin America must not continue believing that it will resolve its problems by reducing the role played by the government, increasing the weight of market forces, privatising public enterprises, raising interest rates and defending local currencies, Kregel told reporters here.

The UNCTAD representative, an economics professor at the University of Bologna in Italy, warned in Mexico that the rise in interest rates in Brazil and Mexico designed to ward off capital flight was exacerbating the financial situation of the States and could lead to collapse.

He lamented that Latin America's two largest economies were engaging in unbridled competition to implement the highest interest rates. But, he conceded, that seems the only alternative accepted today.

Julio Lopez, an economics professor at the National Autonomous University of Mexico (UNAM), welcomed the UNCTAD report as radically different from those we are accustomed to from multilateral bodies.

The Asian crisis has demonstrated the need to revise the international financial system, and has shown that the prescriptions still sustained by entities like the IMF are mistaken, Lopez told IPS.

In Asia and Russia, it was made clear that strategies like raising interest rates do not lead anywhere, said Lopez, referring to measures currently being taken by several Latin American countires to curb the impact of the financial turbulence.

The region must apply capital controls - as Brazil and Chile have recognised in the past - and promote a monetary accord, Lopez added.

Kregel said UNCTAD's proposals were already in the market of ideas. The UN agency - founded in 1964, with 188 member countries today - has attracted apprehensive glances from international lending institutions on more than one occasion, because it often holds viewpoints that differ from those imposed on the economic front.