FINANCIAL GLOBALIZATION AND THE EMERGING ECONOMIES Editors José Antonio Ocampo Stefano Zamagni Ricardo Ffrench-Davis Carlo Pietrobelli ECONOMIC COMMISSION FOR INTERNATIONAL JACQUES LATIN AMERICA AND THE CARIBBEAN Santiago, Chile, 2000 MARITAIN INSTITUTE LC/G.2097-P May 2000 This document has been prepared and published jointly by the Economic Commission for Latin America and the Caribbean (ECLAC) and the International Jacques Maritain Institute. Its contents were edited by José Antonio Ocampo, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC); Stefano Zamagni, Professor of Economics at the University of Bologna; Ricardo Ffrench-Davis, Principal Regional Adviser of ECLAC; and Carlo Pietrobelli, Professor of Development Economics at the University of Molise, Campobasso. This book has been published with a special grant from: Compagnia di San Paolo (Turin, Italy) and with the contributions of: Coopération et Solidarité (Brussels), Endesa Group (Madrid), Fondazione Mondo Unito (Vatican City), Ministry for University and Scientific Research of Italy, Ministry of Finance of Chile, Ministry of Foreign Affairs of Italy, Sanpaolo IMI (Turin), Swiss Federal Office for Foreign Economic Affairs. Applications for the right to reproduce this work are welcomed and should be sent to the Secretary of the Publications Board, United Nations Headquarters, New York, N.Y. 10017, U.S.A. Member States and their governmental institutions may reproduce this work without prior authorization, but are requested to mention the source and inform the United Nations of such reproduction. UNITED NATIONS PUBLICATION Sales No. E.00.II.G.39 ISBN 92-1-121265-0 Copyright © United Nations and International Jacques Maritain Institute, 2000 All rights reserved Printed in Chile ECLAC 5 CONTENTS ■ Page Foreword ............................................... 7 About the Editors............................................ 9 INTRODUCTION .......................................... 11 1 International Finance: Factor of Peace or of Conflict?, Roberto Papini............................................ 13 2 Where do we Stand?, José Antonio Ocampo ................... 19 3 Globalization as an Economic and Social Force: Opportunities and Risks from a Humanistic Perspective, Eduardo Aninat...... 25 4 Financial Markets and Globalization: The Perspective of Emerging Economies, Eduardo Frei Ruiz-Tagle ................ 31 I INTERNATIONAL FINANCIAL REFORM ................ 39 5 A Broad Agenda for International Financial Reform, José Antonio Ocampo ...................................... 41 6 International Financial Architecture: Foundations and Framework, Gavin Bingham ................................ 63 7 The New Global Financial Landscape Under Stress, Hans Blommestein ......................................... 77 8 Towards a New Financial Architecture: The Management of Crises, Stephany Griffith-Jones ............................ 103 9 Beyond Bretton Woods: What International Monetary and Financial System for the Twenty-First Century?, Alexander K. Swoboda...................................... 123 10 Taxation and the Architecture of the International Economic System, Vito Tanzi ............................... 139 6 FINANCIAL GLOBALIZATION AND THE EMERGING ECONOMIES Page II NATIONAL POLICIES TO FACE VULNERABILITY........ 151 11 Stabilizing Capital Surges in Emerging Economies, Ricardo Ffrench-Davis ..................................... 153 12 An Asian Perspective on the Desirable International Financial Architecture, Koichi Hamada ............................... 175 13 The Impact of Financial Globalization on Transition Economies, Bernard Snoy ............................................. 193 14 Crisis and Contagion: Some New and Old Ideas, José Luis Machinea ........................................ 211 15 Capital Flows in Chile: Changes and Policies in the 1990s, Carlos Massad............................................ 219 16 Economic Policy Options and Financial Globalization: Mexico, 1988–99, Rocío Ramos de Villarreal and René Villarreal... 233 III STATEMENTS: THE SOCIAL ACTORS IN THE FACE OF VULNERABILITY ....................................... 253 17 The Responsibility of Financial Actors, Angelo Caloia.......... 255 18 International Financial Flows: A Labour Point of View, Luis Anderson ............................................ 267 19 Why Common Good Matters, Jean-Loup Dherse .............. 273 20 Ethics and the Financial Community, Andrew Hilton........... 279 21 A Challenge to Globalization Theory, William Pfaff............ 287 22 Dealing with ‘The Global Governance’ and ‘The Dual Constituency’ Syndromes in Emerging Countries, Louis Sabourin............................................ 293 23 Going with the Flow of the Market, Justin Welby .............. 303 CONCLUSIONS ............................................ 311 24 The Emerging Economies in the Global Financial Market: Some Concluding Remarks, Carlo Pietrobelli and Stefano Zamagni ..... 313 ECLAC 7 FOREWORD ■ Financial globalization has been a most dynamic component of the continued globalization experienced by the world in recent years. Capital flows to a large number of emerging economies expanded rapidly during the 1990s. Such capital surges were often followed by financial crisis affecting several emerging economies of Asia and Latin America in the 1990s. There is a broad recognition that financial instability is deeply rooted in the present operation of markets, which has brought consensus on the need to examine the issue in depth, in order to urgently find better solutions for crises prevention and crises management. The meetings of International Financial Institutions, G-7 and various groupings of developing economies have directed their attention to this issue. This collection of essays results from an international conference convened by ECLAC and the International Jacques Maritain Institute of Rome in Santiago de Chile in 1999. This conference brought together policy-makers, academics, members of international institutions (BIS, EBRD, IMF, OECD), and social actors (mass media, labour unions, churches and financial activity). The book includes four parts. The Introduction collects the opening statements in the conference. Part I contains a discussion of the issues and proposals on how to reform the international financial structure. Part II discusses the national policies to face financial instability, and their role in stabilizing capital flows. Part III includes statements by different social actors on their views on financial globalization and their messages to policy-makers. Santiago, Chile, January 2000 8 FINANCIAL GLOBALIZATION AND THE EMERGING ECONOMIES ECLAC 9 ABOUT THE EDITORS ■ Ricardo Ffrench-Davis, Ph.D. in Economics, University of Chicago (1971). Principal Regional Adviser, ECLAC, Santiago de Chile. Director of Research (1990-92) of the Central Bank of Chile. Co-founder of Center for Economic Research on Latin America (CIEPLAN), Santiago de Chile (1976-89). Professor of Economics at Universidad de Chile; visiting professor at Oxford and Boston Universities. Author or editor of thirteen books and about one hundred articles on international economics, development strategies, foreign financing, and Latin American economies. His most recent publications are Reforming the reforms in Latin America: macroeconomics, trade, finance, 1999 (Macmillan and St Martin’s Press in English and McGraw-Hill in Spanish) and Between neoliberalism and growth with equity in Chile, 1999 (Dolmen Ediciones, in Spanish). José Antonio Ocampo, Ph.D. in Economics from Yale University. Executive Secretary of the Economic Commission for Latin America and the Caribbean. Former Minister of Finance and Public Credit, Director of the National Planning Department, Minister of Agriculture and Director of the Foundation for Higher Education and Development of Colombia. Professor of Economics at Universidad de los Andes and Universidad Nacional de Colombia; visiting Professor at Yale and Oxford Universities. He is author of numerous books and articles on macroeconomic policy and theory, economic development, international trade and economic history. His more recent publication are Foreign Capital in Latin America (co-edited with Roberto Steiner), 1994 (Inter-American Development Bank) and La Reforma del Sistema Financiero Internacional: Un Debate en Marcha, 1999 (Fondo de Cultura Económica). 10 FINANCIAL GLOBALIZATION AND THE EMERGING ECONOMIES Carlo Pietrobelli, Ph. D. in Economics, Oxford University. Professor of Economics at the University of Molise, Campobasso, and at the University of Rome 3. He has been a consultant to the European Union, the World Bank, the IADB, UNCTAD, UNIDO, ECLAC. He has published extensively in specialised international journals and his last book Industry, Competitiveness and Technological Capabilities was published by Macmillan in 1999. Stefano Zamagni, Professor of Economics at the University of Bologna; adjunct professor at Johns Hopkins University, Bologna Center; visiting professor at Bocconi University, Milan. Member of the Executive Committee of the International Economic Association (1989-99). President of ICMC (International Catholic Migration Commission, Geneva). Author of Microeconomic Theory, 1987 (Blackwell); History of Economic Thought, 1993 (Oxford University Press); The Economics of Altruism, 1995 (E. Elgar); The Economics of Organized Crime and Illegal Markets, 1999 (E. Elgar). ECLAC 11 INTRODUCTION 12 FINANCIAL GLOBALIZATION AND THE EMERGING